SA’s phantom ‘efficient laager’ skews thinking

THE “efficient laager” is my description of big business’s role in South Africa’s discussions on economic policy.
The central feature of this hypothesis is that it defines business — particular big business — as a bastion of efficiency, neglecting to tackle the core questions of economic concentration.
The stance is insulated and defensive. You and I are probably not welcome in this laager.
About 60 business leaders were polled on their perceptions of the South African economy for the World Competitiveness Report, and substantiate the dominance of the “efficient laager” mentality. Two responses in particular highlight a worrying perspective among business leaders.
First, respondents were asked about the intensity of local competition. The respondents rated South Africa at 36 out of 144 countries. In other words, in this perspective South Africa’s market economy is seen as competitive by international standards. However, according to the Global Entrepreneurship Monitor, the established business ownership rate is only at 2.5% -among the lowest in the world — which hardly suggests a high level of local competition.
Second, respondents were asked about value chain breadth, with a lower ranking suggesting that companies are not involved across the entire value chain. Respondents to the survey ranked South Africa 68 out of the 144 countries surveyed. Yet the South African economy is highly concentrated as cases presented to the Competition Commission have shown over the years.
Industries as diverse as steel and bread all reflect a highly concentrated ownership structures. Importantly, the price structure and dominance of value chains by very large companies is one of the biggest challenges we face in democratising the economy. Again, the perception of respondents can be questioned as much higher entrepreneurship rates are evident in countries ranked much lower on this measure than South Africa.
If the private sector is seen as excellent by respondents, the government is viewed as completely bad.
Let us be clear, the public service in South Africa requires extensive reform to combat rising patronage. The interpretation by private sector analysts is, however, hysterical, and offers scant solutions.
Two examples show this. First is the hyperbolic comparison. At a recent event hosted by the Wits School of Governance, a leading private sector commentator argued that “children under the Taliban receive a better education than children in South Africa”. It is pure sensationalism, partly because the Taliban does not rule Afghanistan. The fact-checking website Africa Check and academic Nic Spaull show that business leaders have a much more negative perception of our education system than international benchmark data supports.
The second common warning is that South Africa risks becoming a “failed state”.
Let us be clear again, the worrying signs of rising patronage must be countered.
However, it is not merely a problem for the government; it resides in the large companies. Listed companies on the JSE that have participated in black economic empowerment transactions invariably do deals, not with smaller companies in their sectors, but rather with companies that have strong political connections.
This is part and parcel of the worrying system of patronage emerging in South Africa. Patronage politics resides inside the largesse of the government, but also is deeply rooted in South Africa’s private sector.
The creation of this phantom “efficient laager” has huge implications. It reflects the duality of income and asset holdings in our society, with the so-called top 1% not merely disconnecting, but taking up a posture that paralyses them.
After all, if all the problems reside in the government, there is little a senior executive can do, except bemoan the rise of the patronage politics and premise investment decisions on this perception of South Africa.
Every so often, some business leaders offer a welcome counter perspective, showing that a more realistic assessment of South Africa and its challenges is possible. These voices are, however, in the minority.
Consequently, a dominant discourse is entrenching itself and big businesses are retreating further into a set of orthodox positions based on conservative perspective of market based reforms.
It venerates economic growth and deregulation, without tackling questions of equity. It hysterically criticises patronage, while participating in it.
A further retreat into what I am calling the “efficient laager hypothesis” would not merely widen the gap between the government and business, but would also reframe the debate in ways that take us further away from solutions. Smaller businesses should take note, because they should not join the chorus of big business, but rather challenge this perspective.
 
This article was first published in Sunday Times: Business Times

5 Comments

  1. Chad BlanchardOctober 12, 2014

    Is it correct that when you refer to the “efficient laager” you are referring to how the Boers used to defend themselves when they would come under attack by placing the wagons in a ring formation around themselves and shoot outwards? It is concerning that businesses are still dealing with major empowerment companies as appose to engaging in the spirit for which BBBEE was designed. The government seems to be paralyzed into making decisions that benefit a small number of people. South Africa is heading towards becoming a “failed state” and will continue to do so until decisions taken are for the benefit of the majority and not a select few. Entrepreneurs need to develop business models to enable the economy to be efficient outside of this “laager”.

    1. Ebrahim-Khalil HassenOctober 14, 2014

      Hi Chad. Using the concept of a “laager” in this piece, helps to describe what I think is a very defensive and insulated posture. Yes, the concept comes from the laager formation used by the Boers. Good point, that government has a set of very worrying practices especially in the economy. I touch on this in the article, but a more explicit expression of this might be needed.

  2. u14244820October 12, 2014

    i agree that there a competition for small enterprises and the economic policy do affect the south African businesses . Small business Enterprise need to be more effective when it comes to generating ideas on how to keep the productivity stable.

  3. Stephen TimmOctober 23, 2014

    Hi Ebrahim, pretty spot on. It’s difficult to get an idea how controlled the economy is, but it’s clearly worse then we are led to assume – especially with so many long running cartels being continuously revealed by the Competition Commission.

  4. Ebrahim-Khalil HassenOctober 24, 2014

    Thanks Stephen. 100% correct. I have been looking at some concentration measures, and will hopefully write something on this soon.

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