Are we in the predator’s labyrinth?

Nedbank chairman Reuel Khoza provides the lead headline in today’s Business Day as “warning of a rogue state future for SA”.

So imagine if you could, for a moment, that you are playing a sports game.

As in a dream, you suddenly realise you don’t know the rules; you don’t know how to score, who’s on your side or what the parameters of the field are.

This could be a comical situation – and I am sure I remember boys from my school days whose mystification on the rugby, cricket or hockey fields would bring a gentle smile to our (his team mates’) faces.

But this is also the stuff of nightmares: an inscrutable world where what happens happens for reasons entirely mysterious, where people are motivated by incomprehensible impulses and the dread of the unknown builds and builds.

I am sure I am not alone in having worked in a dysfunctional institution?

I mean something worse than a j0b in which you are poorly paid and have a psychopath for a boss (entry level experience requirements for human adulthood as far as I can make out).

A dysfunctional institution is one in which the sum total of what the organisation achieves appears to be at-odds with its explicit mission.

I am suggesting something worse than an organisation that doesn’t achieve what it is designed to achieve. I am suggesting that in some instances a deeply dysfunctional organisation can, when everything is aggregated, achieve the very opposite to its stated purpose is.

Which brings me to the institutions of the South African state.

I am occasionally lucky enough to get hold of some excellent economic commentary written by Sanlam Group Economist Jac Laubscher and published on that company’s website. In his most recent contribution (which appears here) he takes some concepts from Why Nations Fail: the Origins of Power, Prosperity and Poverty by Daron Acemoglu and James A Robinson (book I haven’t yet read, but will do so on the back of Jac’s comments) and hints at how they might be applicable to South Africa.

According to Laubscher, Acemoglu and Robinson suggest that the dominance of “inclusive institutions”  over “extractive institutions” is the difference between success or failure of nations.

Inclusive institutions harness and unleash human creativity and incentivise citizens and workers to give of their best.

As Jac Laubscher summarises:

Inclusive institutions are characterised by guaranteed property rights (vital for investment and productivity growth), an impartial legal system that upholds contracts, the effective provision of public services to create a level playing field, space to create new businesses, and the freedom to choose one’s career.

“Extractive institutions” in the words of Jac Laubscher:

… are aimed at extracting income and wealth from one section of society to the benefit of another section of society, usually the elite. In fact, extractive political institutions are the means by which the elite enrich themselves and consolidate their political dominance.

It is a fairly simple matter to demonstrate that to some degree key state and semi-state institutions and processes in South Africa have become mechanisms for extracting wealth by the politically connected elite.

But a key qualifier here is “to some degree”. I don’t think the state has yet, unambiguously, become an extractive tool of the political elite. But it is obvious that at least part of the political elite is struggling mightily to shape our institutions to and for that purpose.

Yesterday I listened to Trevor Manuel deliver the National Development Plan to a joint sitting of parliament. At the same time the the Constitutional Court was hearing an application by the Treasury and Sanral to set aside the April interim interdict granted by North Gauteng High Court halting e-tolling and mandating a full review of the system.

My views on both Trevor Manuel and e-tolling are ambiguous – they both have their good and bad points – but I appreciate the subtlety and complexity of what the National Planning Commission has tried to achieve … and I celebrate the fact that we have a Constitutional Court we can trust with decisions like the one it was busy with yesterday*.

But the institutions of our society are not yet the corridors of the predators’ labyrinth – but we’d be foolish to ignore the signs.

* The Concourt matter is important for a number of reasons, but the aspect that interests me professionally, is part of what is happening is driven by the fact that the Treasury feels the need to defend its credibility as a borrower. I suspect that the rating agencies are happy that the Treasury is fighting this matter but are anxious that they might lose. The lender wants to be certain that the entity to whom it lends is properly able to make the agreement to pay the money back. The Treasury is ultimately arguing that the North Gauteng High Court ruling means no lender to the South African government can be sure that the courts might not declare, in effect, that government was legally incompetent to make the decision in the first place – significantly increasing default risk.

5 thoughts on “Are we in the predator’s labyrinth?

    1. Hi Charles – I have got to say, I am expecting that the ideological orientation of Acemoglu and Robinson to be gung-ho free-market, which usually means they will argue that US democracy “unleashes human potential”. There are two reasons I would be leery of this conclusion. It seems to me that US corporate power over the US government means US corporates capture for themselves – to some degree at at the expense of citizens – institutional power and thereby limit the normal benefits of ‘inclusive institutions’. Obviously the US is hugely creative, so my second point applies more to the US as an institution – which is the sense, I think, in which you are using it. There can be no doubt in my mind that if THE WORLD is the basic unit of analysis, then the US acts to shape it to its own, often narrow, interests – and in this sense could be argued to be an ‘Extractive institution’.

    1. Hey thanks Anthony … and lovely to hear from you. BTW a friend contacted me about this piece and said that unlike me she was just busy finishing the book – and that A&R see a huge role for the state … how can I think they might be “gung-ho free market”? So thanks for a link to what the actual authors are saying … also, I read a piece on the book by Jarad Diamond which I found very interesting… here: http://www.nybooks.com/articles/archives/2012/jun/07/what-makes-countries-rich-or-poor/?pagination=false … for obvious reasons Diamond prefers to emphasise “environmental” factors … and therefore what I think of as ‘sensitivity to initial conditions’ … which I imagine would be a useful methodological addition … but before I get ahead of myself, I better toddle across the road and buy a copy at Exclusives … I was hoping to avoid spending the money, but I am in it too deep now.

  1. Hi Nic, my view on the US was internally focused with what seems to be a huge shift in wealth over the past few years from the middle classes to the top 1%, seemingly as a consequence of lobbyists buying an increasing amount of influence in Congress. That would fit Laubschers definition perfectly. I thik it’s well accepted that internationally the US always acts in its own interests.

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