Why+poor+get+poorer+according+to+de+Soto+and+P+M-N,+B+Rep



=**Why the poor get poorer, and how to change that**=

Business Report, Johannesburg, February 8, 2006

 * By Ann Crotty**

"Dead assets." That's how deputy president Phumzile Mlambo-Ngcuka describes the assets owned by the poor and marginalised of our economy.

They tend to comprise livestock, land or housing and are in effect "dead" because they cannot be used to leverage capital to set up new businesses or expand existing farming operations.

It is a concept that lies at the heart of Peruvian economist Hernando de Soto's explanation for why a large segment of the world's population cannot harness the few assets they have to raise enough capital to drag themselves out of poverty.

It goes a long way to explaining why the rich get richer and the poor get poorer. The rich have what you might call very much alive assets. And these can be used to take advantage of whatever business opportunities are on offer.

The ability to take advantage of such opportunities generally enables them to become richer, which in turn enables them to take advantage of even more opportunities.

Meanwhile, the guy with the "dead assets" is back trying to negotiate some expensive deal with the local moneylender - so expensive that there is no scope to make a net profit out of any opportunity that comes his way.

All of which, in a roundabout way, brings us to the codes of good practice on broad-based black economic empowerment and whether or not retirement funds are included.

What sort of bizarre logic could justify the exclusion of retirement funds in the calculation of the code's scorecard? By excluding retirement funds the government would be killing a powerful block of assets that are currently alive, although perhaps a little sleepy.

What an appalling travesty it would be. Have you noticed who are currently the major winners in the thriving black empowerment industry? It is the people who have the capital to take advantage of all the opportunities.

And it is the institutions that provide the capital to the participants who have none. The winners in the Johnnic empowerment saga weren't the inappropriately named "empowerment" parties, but the institutions that financed them.

The likes of Patrice Motsepe, Mzi Kumalo and Tokyo Sexwale have managed to accumulate some "live assets" in the form of profits realised on early transactions and have been able to use these assets to get access to lots more deals. And because they get access to more attractive empowerment deals, they make more money.

Of course, members of retirement funds do not fall into the "poor, unemployed and marginalised" category that makes up the second economy, but in many instances the retirement funds belonging to black workers comprise their single largest asset.

It not only deserves to be kept alive, but if the key objective behind empowerment is to transform the economy, then harnessing this asset base is the single most effective way of achieving that objective.

While stories about black individuals owning only 3.5 percent of the JSE may make for good media drama, they tend to overlook the fact that through their retirement funds, groups of black South Africans own 40 percent-plus of the JSE.

Even this 40 percent is not enough, but it is a good start. The crucial issue is that while black people own this stake in the JSE, they generally do not control it.

Control often rests in a Byzantine structure that stretches from trustees on the factory floor through to the hallowed halls of the powerful asset management companies, with most of the control being exercised at the asset management end of the structure.

Assuming that retirement funds are not to be rendered "dead" by the code, it must also be assumed that their inclusion cannot be done passively.

Indeed, it is nonsense to assume you could be an unwitting partner in an empowerment transaction. For instance, Sasol would not be allowed to boost its credentials by trawling through its shareholder register and establishing that let's say 25 percent of its equity is black owned.

The move would have to be initiated by black people in the shareholder register who would approach Sasol with an empowerment proposal from which they would benefit.

So the challenge for black employees is to take control of what they own in order to be able to reap some of the benefits offered by black empowerment. Trade unions are an institution for harnessing this power.

The suggestion that unions would use this power to force radical policies on management ignores the reality that unions are generally conservative. It also ignores the fact that trustees face onerous fiduciary responsibilities in their management of retirement fund monies.

So while union-related funds might approach shareholder activism with more enthusiasm and thought than most fund managers, they're certainly not going to be jumping from one company to another just because they don't like the size of an executive's remuneration package.

Including retirement funds in the empowerment code may not add to the growing list of wealthy black individuals but it will help to transform the economy and put more life into what is an extremely important asset for most black employees.


 * From: http://busrep.co.za/index.php?fSectionId=553&fArticleId=3101261**

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