‘Tackle big business on many fronts’

Buck the trend: The JSE in Johannesburg. A few large firms dominate various sectors. A particularly useful one to open up is retail and local government can play a role in this.  (Photo: Dean Hutton, Bloomberg)

Buck the trend: The JSE in Johannesburg. A few large firms dominate various sectors. A particularly useful one to open up is retail and local government can play a role in this. (Photo: Dean Hutton, Bloomberg)

ANALYSIS

The leaking of the public protector’s interim report into banking giant Absa’s apartheid debt has again brought the messy issue of how to address the injustices and resulting economic inequality to the fore.

The solutions often proposed are hotly debated and a common refrain is the need to boost growth, often with steps such as relaxing labour laws or other policies aimed at boosting competition among private sector companies.

But in many industries the private sector is made up of a few large firms that wield enormous power in their markets and potentially limit the entrance of newcomers. Banking is a case in point, where the likes of Absa are just a handful of large players.

The issue of monopoly capital and market structures that concentrate wealth in the hands of a few is further complicated by our history. Apartheid benefited white-led companies and white people generally.

Critics of concentration in South Africa’s economy include the International Monetary Fund, which, in 2011, noted the high degree of concentration and minimal competition in many of South Africa’s goods and service markets, which, among other things, were a result of “the legacy from past attempts at encouraging the emergence of national champions”.

The term “white monopoly capital” has gained renewed currency in recent months.
It is as Pamela Mondliwa, a researcher at the University of Johannesburg’s Centre for Competition, Regulation and Economic Development, explains “inherited, state-sponsored capital accumulated by white South Africans”.

Although it may be compelling to draw attention to a few big firms, it “ignores bigger questions about structural inequality and unequal distribution of wealth ... as a whole”, she says.

Given the concentration of South Africa’s markets, competition policy has been an important tool to correct the power that the few have over the many. In a report last year, the World Bank estimated that work by competition authorities, which led to the breaking up of four cartels, in the wheat, maize, poultry and pharmaceutical industries, kept 200 000 people above the poverty line, reducing poverty rates by 0.4 percentage points and helping social grants to stretch further.

Taking down a cartel in the cement industry allowed the entry of a new player, Sephaku Cement.

But the economy continues to be highly concentrated, Mondliwa says. Although competition law has been successful in breaking up cartels, leading to lower prices for consumers, it has largely not opened up markets to entrants.

A focus on the retail sector warrants special attention, she says, given how important it is as a route to markets for a wide range of suppliers.

The Competition Commission is holding a market inquiry into the retail sector, with public hearings beginning in February.

A key concern in the sector has been the effect that exclusive leases in malls has had on those trying to compete against major supermarkets.

Local government could play a big role in dealing with this, she says. Municipalities could tackle it with, among other things, planning

policy.

Competition policy is one way to address the concentration of business but studies by the centre warn against the temptation to look for a silver bullet. Instead, it highlights that interventions need to be made on several fronts because they are mutually reinforcing, Mondliwa says.

According to Neva Makgetla, a senior economist at the economic research organisation Trade and Industrial Policy Studies, competition policy as a way to address monopolies cannot restructure the economy in the same way as other measures such as industrial policy can.

Competition policy is designed to limit collusive behaviour but cannot, for instance, promote the establishment of new producers or develop the infrastructure to support

them.

The apartheid regime ensured the creation and domination of large, white companies, destroying small competitors, in particular black entrepreneurs. Data from the World Bank shows that South Africa has one of the lowest self-employment levels — only 20% of employed people are employers or self-employed. The figure is about 40% in peer countries.

Makgetla says small black producers were systematically closed down or undermined so that fewer people than in peer economies inherited assets, business networks and relationships, as well as the skills to run their own enterprises.

Makgetla is also “not convinced that just changing the ethnicity or gender of the people at the top will make a huge difference”.


How to hurdle the entrepreneurs’ barriers

Pamela Mondliwa, a researcher at the University of Johannesburg’s Centre for Competition, Regulation and Economic Development, says studies have highlighted several barriers that block greater participation by entrepreneurs and producers in the economy. These are often mutually reinforcing microeconomic factors.

The studies also show that, when big decisions are made, they have often reinforced the interests of the large players.

“This has sometimes been linked to a BEE [black economic empowerment] quid pro quo, where the state continues to protect the incumbent in exchange for more black suppliers or shareholding,” she says.

“These ‘deals’ in fact reinforce the dominant firm’s power, as it is entrenched as the gateway to opportunities.”

Mutually reinforcing interventions are needed on a number of fronts, she says, including funding for new entrants. It requires “patient” capital, given the time it takes to build up the scale and reach required to be competitive in many areas, and an appetite for risk, which comes with financing rivals to take on powerful incumbents.

Competition law could also have been given greater reach, Mondliwa says, as it is relatively weak on abuse of dominance.

She says we should also be asking broader questions about how to redistribute wealth and assets, such as alternative models of taxation and inheritance; re-examining liberalisation and low taxation regimes that have contributed to practices such as tax evasion and profit shifting; and the monetisation of social services such as healthcare.

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