Capitalist contradictions

Bubbly returns are unsustainable, far outstripping the rate of real economic activity. (Gustav Butlex, M&G)

Bubbly returns are unsustainable, far outstripping the rate of real economic activity. (Gustav Butlex, M&G)

Journalist Allan Greenblo claims “Rhodes Must Fall (RMF) campaigners are barking up the wrong tree,” as he defends financial links between the University of Cape Town (UCT) and Lonmin in particular, and the ethics of South African companies in general.

Ironically, even as the editor of Today’s Trustee, a quarterly that ideally would help watchdog financial markets, Greenblo barely whispers when he comes face-to-face with the deepest-rooted corporate rot. (By which I mean corruption beyond the superficial salacious sleaze of someone like gambling tycoon Sol Kerzner, over which Greenblo or any other business journalist naturally salivates.)

Lonmin is a fine example of that rot but it is really the tip of the iceberg. And right now is precisely the moment to put unprecedented moral pressure on big business, as job cuts, cumulative pollution and capital flight reach record levels, to the extent that African National Congress leader Gwede Mantashe has finally, late in the day at last month’s ANC lekogtla, arrived at the conclusion, “Rising inequality may destroy us.”

Some might rebut that by adopting economic-apartheid policies since 1994, leaving us with worse inequality than during racial apartheid but giving SA corporations the third highest profit rate on earth (according to the International Monetary Fund in 2013), the ANC does deserve rapid self-destruction and replacement by a genuinely patriotic political party.

Recalling SA capital from London?

But unless he is talking left in order to walk right (quite likely), it is worthwhile to hear Mantashe out. At long last he questions “the wisdom of allowing a company like Old Mutual to have its domicile in London when 70% of its global profits continue to be generated in South Africa”. That “wisdom”, imposed on the economy in 1999 by finance minister Trevor Manuel and SA Reserve Bank governor Tito Mboweni, is the financially-parasitical logic of Rothschild Bank and Goldman Sachs (their subsequent employers).

That logic favours the untenable paper profits made by investment-fund trustees gambling with our insurance pools and pensions on what was recently (2007-13) the world’s fastest-growing (ie most absurdly speculative) major stock market, the Johannesburg Stock Exchange (JSE). Not only are these bubbly returns unsustainable, far outstripping the rate of real economic activity. They are also a drain on genuine investment because new machines and jobs simply cannot compete on returns against the JSE casino.

Moreover, an inordinate share of those profits flow out to Old Mutual’s London offices, thus putting pressure on the current account deficit and in turn crashing the rand. Even if rising exports allow us to run a trade surplus from time to time, such as 2009-11, the outflow of profits, dividends and interest has been a steady 4% of GDP for the last decade, requiring a massive rise in foreign debt – $100 billion in the last decade – mainly to pay the multinationals out in hard currency.

The argument for returning to home ownership Old Mutual and others that took the 1999 gap is not just on macroeconomic grounds, but for investors’ sake is supported by the state’s Public Investment Commission (PIC). That’s in part because, as Financial Mail columnist Phakamisa Ndzamela observed in April, “Since 1999, Old Mutual’s stock has risen by about 159% compared with Sanlam’s 819%” in rand terms as a result of the bad global-casino bets. In contrast, Sanlam didn’t take the gap for London but stayed in South Africa.

The implications of this big-picture argument are terrifying to unpatriotic investors who have been begging for fewer exchange controls, so as to remove their (apartheid-era) wealth from South Africa, forever. And Finance Minister Nhlanhla Nene appears to be in their pocket, having in the 2015 budget raised the rate of permissible annual wealth outflow by individual South Africans from R4-million to R10-million, at the same time he cut social grants by 3% in real terms.

Divest to achieve economic, environmental, social and governance responsibility

However, aside from the PIC, investment fund trustees have not chimed in to defend the South African economy from capital flight. Those who believe what they read in Greenblo’s Today’s Trustee are naturally tempted to ignore both their moral and fiduciary (economic) responsibilities. They thus continue, with peace of mind, to invest in Lonmin and other firms that so blatantly violate “environmental, social and governance” (ESG) common sense.

Forcing UCT to sell Lonmin shares in protest at the Marikana massacre is one of many challenges for to the RMF project, and others will potentially include addressing legacies of Cecil Rhodes’ own mining firm De Beers; of his British South Africa Company that land-grabbed what are today three countries; and of the permanently destructive national borders that his mates drew up during the Berlin ‘Scramble for Africa’ in 1884-85.

More power to the activists, for Rhodes’ version of capitalist looting is alive and well today in Sandton, and this was remarked upon by Nelson Mandela himself in 2003 at the opening of the Mandela-Rhodes Foundation, “I am sure that Cecil John Rhodes would have given his approval to this effort to make the South African economy of the early 21st century appropriate and fit for its time.” No doubt he would have.

Those are the necessary long-term strategic reversals of the post-1994 counter-revolution that will be pursued by next-generation #Rhodes’WallsMustFall and #Rhodes’ProfitsMustBeShared movements against xenophobia and inequality. In the shorter term, divestment advocates like RMF have done well, tactically, to target, for example,

  • companies profiting from apartheid (and that is one substantial reason we gained freedom by changing the balance of forces 30 years ago);
  • fossil fuels emitters and their financiers who are destroying our future (led here by whose Johannesburg office targets Nedbank and other coal investors);
  • tobacco companies threatening both the private and public health (very successful in the US but not so much here yet);
  • because of Israeli investors’ role in the colonial occupation of Palestine (the Boycott Divestment Sanctions movement has grown strong enough to attract legislative attack from Tel Aviv politicians); and until a few years ago,
  • multinational corporations supporting the Burmese dictatorship (one reason for that country’s slow democratisation).

There are many others, and most such campaigns confidently wave the flag of South Africa’s 1980s sanctions pressure. Indeed the most vital element in these non-violent social-change campaigns is how they have contributed to democratic movement building, as they cross borders and jump scale from local to global. Solidarity is vital, as the victims of profiteering combine forces with those – like UCT students – with access to power. The former demand that the latter critically consider where their profits come from, and those in the latter who possess a social consciousness then pledge to use this knowledge to advocate divestment.

Corporate social irresponsibility

In response to these kinds of demands, Greenblo and fund trustees have embraced the most trivial corporate reforms, like the apartheid-friendly “Sullivan Principles” in 1976 (which Today’s Trustee termed the beginning of the “Responsible Investment journey”), or more recently, Socially Responsible Investment (SRI) and other Corporate Social Responsibility gimmicks. These are scams, by and large.

For instance, although Greenblo endorses them as the “rough-and-ready way for trustees to check on ESG compliance”, the JSE’s SRI guidelines are South Africa’s most unenforced, weak-kneed and PR-oriented, a problem dating back many years without hope of change.

Actually, it seems that Ernst&Young (EY) is trying hard to catch up, what with last week’s award to Eskom – Africa’s largest CO2 emitter, prolific air and water polluter, and grantor of vast amounts of ultra-cheap ultra-dirty electricity to BHP Billiton and Anglo American (while disconnecting the rest of us) – for “preserving the environment and harnessing the country’s natural resources”.

Such gimmicks are obviously designed merely to pull the wool over investor eyes and thus to give trustees like UCT’s Max Price and Ian Farlam some form of plausible deniability. Greenblo insists that these men “can hardly be expected to have anticipated a Marikana outcome any more than they could be expected to anticipate the movement in a share price”.

Ahem, one of the most important civil society watchdogs in African mining, the Bench Marks Foundation, has since 2007 been publicly assessing the platinum belt’s – and especially Lonmin’s – inhumane living conditions, ecological destruction and labour exploitation. As its director John Capel then wrote, “We hope that mining houses will use this report to guide their corporate social responsibility initiatives and that they adopt ethical principles that will be central to how they do business.”

Lonmin’s SRI awards … at Marikana

But that didn’t happen because the SRI back-slappers were louder, chiming in to praise Lonrho’s existing record at Marikana, apparently without visiting the site of such human suffering and pollution. In 2008, the local commercial bank most actively greenwashing its financing of minerals and coal, Nedbank, awarded Lonmin its top prize in the socioeconomic category of the Green Mining Awards. By 2010 Lonmin’s “Sustainable Development Report” was ranked “excellent” by EY, that paragon of SRI rigour.

In 2007 the World Bank’s private sector arm, the International Finance Corporation (IFC), committed a $15-million ownership stake and $100-million loan to Lonmin. The funding allowed the firm to dangle a promise to its workers that 5 000 formal houses would be built in the Wonderkop and Nkaneng shack settlements. The IFC applauded Lonmin’s ‘best case’ practices ranging from economic development to racially-progressive procurement and community involvement to gender work relations.

Greenblo adds a further, quite extraordinary explanation for why RMF should forgive UCT and other Lonmin-friendly trustees: “When it was last updated, Lonmin was on the [JSE] SRI index. Further, at the time of assessing Lonmin, trustees might have been further comforted by assuming that Cyril Ramaphosa, then a director on Lonmin’s main board, was promoting ESG issues.”

“Comforted”? What kind of trustee is comforted by a man implicated in 1990s corporate governance meltdowns at Nail and the Molope Group, followed by his ANC-corporate cronyism so bluntly displayed in August 2012 at Lonmin, a relationship which should leave Greenblo extremely discomfited, as Pierre de Vos has argued.

Meantime, over in Marikana, it was all a ruse, for the $100-million Bank loan was never drawn down, even when Lonmin’s 9% shareholder Ramaphosa was put in charge of its Transformation Committee in 2008 and told to build the houses. He claimed to the Farlam Commission of Inquiry there was only enough money to build three houses (but that erratic Commission neglected to consider the World Bank loan, and went lightly on Ramaphosa).

And at the time, Ramaphosa did not object when Lonmin was secreting an annual R200-million to a dubious Bermuda offshore marketing subsidiary: a classic case of illicit financial flight.

And who can forget (except Greenblo, apparently) that the Marikana massacre was motivated in part by emails Ramaphosa sent to the police for a “pointed response” to a wildcat strike. The day after 34 of his employees were shot dead, Lonmin co-owner Jim Yong Kim – World Bank president – simply ignored a call by the Center for International Environmental Law to divest from Lonmin. Kim continued to duck the chore of even mentioning Marikana during his visit to nearby Pretoria just two weeks after the massacre.

With Lonmin’s award-winning SRI like this on display, what arrogance allows Greenblo to criticise RMF?

Macroeconomic reasons to invest in society, not in multinational mining houses

I hope RMF doesn’t stop with this sole case and moves its argument further, from morals to money. Because from a fiduciary standpoint, the need to rethink investment in mining houses like Lonmin is crystal clear, even if not to Greenblo.

Could trustees have reasonably anticipated the crash of Lonmin’s valuation? For Greenblo, “Lonmin has been punished by a fall of over 80% in its share price since Marikana. Thus the members of pension funds invested in Lonmin have been punished accordingly.”

His logic is worrying, in part because it was not the August 2012 massacre that was responsible for the bulk of the share price slide, but subsequent strike action and the overall platinum price crash. Why didn’t Lonmin-owning trustees begin to get a sense of both the underpayment of workers and the over-reliance on exporting raw materials until it was too late? The question applies to investors in nearly all mining companies.

Maybe it was because the information they receive from Greenblo, the financial weeklies, Business Day and Business Report is so flawed. Did Greenblo’s magazine ever consider, before the last world economic crisis in 2007-09, that the financial sector was choc-a-boc with capitalist contradictions? Today’s Trustee remarked in December 2007 that the prior months’ “credit crisis should be confined to developed markets” – i.e. US home mortgage bonds – and hence that “Negative sentiment should be contained where the problem lies.” Oops.

That touching faith in market corrections – ie, his inability to spot a brewing crisis – makes Greenblo’s rag a truly risky read. Greenblo’s logic is most disturbing because he isn’t able to acknowledge that the commodity price cycle actually peaked way back in 2011. With China now on the skids – to the extent that instead of buying our steel it is now flooding our market, which in turn is crashing our largest steel-makers – there is every reason to permanently ditch Lonmin and instead invest society’s resources and job opportunities in ‘Just Transition’ strategies like solar energy, wind and public transport, as advocated by the metalworkers union.

Disturbingly, Greenblo advocates the opposite: “Arguably, it would be counter-productive to disinvest from Lonmin at the share’s bottom price (and so to converting a paper loss to a capital loss, also denying the receipt of dividends likely to improve as the commodities cycle improves).”

But will that cycle improve in the near or even medium-term, given the vast overexpansion crisis that world capitalism now confronts, with an imminent shake-out of exposed businesses that will be far more ruthless than even recent weeks have hinted?

Divesting from the world’s most corrupt capitalism

In this context, when so much investment capital is needed to rebuild a genuine economy, one that meets people’s needs, Greenblo gives no justification for defending the indefensible: South Africa’s ongoing vulnerability to carbon-intensive minerals and smelting, responsible for so many of our society’s distortions, apartheid migrant labour, local ecological destruction and climate change, fatal communicable diseases and brutal exploitation.

Any investment is acceptable, then, for a profit? When PricewaterhouseCoopers last year named our Sandton corporate class “the world leader in money-laundering, bribery and corruption, procurement fraud, asset misappropriation, and cybercrime”, did Today’s Trustee mention the dilemma for investors, much less tackle these habits?

Sadly no. For Greenblo has a sorry record of making simple mistakes and not acknowledging them. So drop any illusions that Today’s Trustee’s readers will in future be informed of the PwC critique of structural big business corruption, much less get news about the economy’s other profound contradictions. At best, Today’s Trustee may occasionally follow a corrupt official to his career grave, or attack a sleazy financier. That’s easy. But RMF’s deep critique of corrupt, racist South African capital seems beyond Greenblo’s comprehension.  

On the other hand, perhaps Greenblo does understand where RMF could lead society, in this lone sensible comment in his attack: “It would be inconsistent to single out Lonmin as the sole company for disinvestment on grounds of relative ESG non-compliance… If trustees of the UCT fund have ‘blood on their hands’ because of the investment in Lonmin, then so too must all trustees of all pension funds similarly invested.”

Quite right, and more power to RMF if they can fell not just the Lonmin tree but enter the bigger forest of unpatriotic mega-corporations, by asking simple ethical questions of university trustees and the rest of us, too.

  • Bond is a professor of political economy at Wits and of development studies at UKZN.


blog comments powered by Disqus

Client Media Releases

MobiMoola wins inaugural TADHack SA challenge
Soweto communities to benefit from eKasiLabs programme
Sentech achieves clean audit again