Snout+in+the+trough+for+overeaters,+not+leaders,+Ann+Crotty,+B+Report




 * Snout in the trough is for overeaters, not leaders **


 * Ann Crotty, Business Report, Johannesburg, 13 February 2008**

Are you beginning to suspect that you're the only person in South Africa who does not have your snout in some or other trough? And does that suspicion fill you with an enormous sense of pride and self-worth bordering on righteousness?

Or are you detecting signs of panic as you wonder whether our economic infrastructure will cope with the increasing numbers of politicians and executives who appear to believe they are entitled to scam excessive rewards for their own account?

Of course, every economy allows some scope for "rent seeking" by well-placed individuals. Politicians the world over are seemingly allowed kick-backs for "enabling" the award of some or other contract to a particular business - just as top executives secure increasingly generous returns from their business activities.

We're talking the sort of returns that do not square with the workings of an efficient competitive market system, where returns are assumed to be in line with the value added. This rent seeking is a global disease with widespread implications.

Consider this recent comment by Financial Times columnist Martin Wolf: "The profits of financial companies [in the US] jumped from below 5 percent of total corporate profits, after tax, in 1982 to 41 percent in 2007, even though their share of corporate value added only rose from 8 percent to 16 percent." So for a twofold increase in value contribution, US banks secured an eightfold increase in profit - most of which went to well-placed executives and shareholders.

In the allegedly most efficient economy in the world, a relative handful of individuals were able to extract more value than they contributed - in effect, to steal value from the economic system.

Over the next few years the millions of not so well-placed people who suffer the consequences of this theft - in homelessness and unemployment - will no doubt ponder how and why it was allowed.

Back in South Africa, we are now faced with the prospect that yesterday's well-placed politicians will not be tomorrow's, so the economy may have to support the commission-seeking demands of a new camp of politicians.

Meanwhile there are the businessfolk - who seem increasingly to show how very actively involved they are in their own rent seeking activities. There is little to allay the suspicion that collusion between powerful firms extends well beyond bread, milling and pharmaceutical products.

Collusive activity represents a debilitating cost to the economy: it allows powerful individuals to secure uneconomically high returns and prevents a market from functioning in the most efficient way possible.

The cost of this distortion is suffered most by the weakest members of the economy, while the benefits accrue to senior executives who are rewarded for the huge profits reaped by their companies.

In this environment the remuneration packages awarded to our top executives become truly obscene. That they are not recognised as such is because of the charade played out in our boardrooms, where like-minded individuals pass judgment on each other's contributions and conclude that they are worth a fortune.

We are told that these guys deserve a fortune for running large, complex listed firms in highly competitive industries.

Then defenders of Tiger Brands chief executive Nick Dennis argued that he could not have known about collusion in bread prices because the group is so large and complex. Which is, of course, why he shouldn't have been paid as though he did know every detail.

Of course, most us are law-abiding individuals with no access to troughs. And we deserve much more from our leaders.


 * From: http://www.busrep.co.za/index.php?fSectionId=553&fArticleId=4251530**

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