This article is prompted by two conversations I have had recently; one with a young Chinese woman at a lunch with friends last Sunday and the other with a South African businessman who has just returned from Lagos in Nigeria.
In the first conversation, the lady said that despite the strong political hold that the Chinese Communist Party has over the nation, in the minor towns and villages across the country economic anarchy reigns. This has been incredibly beneficial in that it has led to an entrepreneurial revolution which has propelled China to No 2 in the global economic order behind the US. It may not be the sole cause because you have to consider foreign investment in China as well, but sure as night follows day it has helped.
The businessman said that he had gone to Lagos expecting another down-at-heel, demotivated Third World city. Instead, he discovered one of the most exciting places he has ever visited, putting it on the same pedestal as Hong Kong. He found the entrepreneurial energy irresistible in Lagos. Everywhere he went people were buying and selling things in an unregulated environment other than the prime rule of cash on delivery. He now considers Johannesburg’s boastful slogan of being the leading business centre in Africa to be totally empty. He sees the future of African capitalism as Lagos. Johannesburg belongs to the history book of colonial capitalism.
What both these people’s opinions had in common was the idea of economic freedom – not the one peddled by Julius Malema of transferring assets at no cost between rich and poor with an increasing role for the state. The one they have in mind is breaking the oppressive chains binding the small business owners in this country. True liberation will only come when all those creative souls who are not politicians, not civil servants, not directors or employees of large, established businesses, not unionists or union members, not the recipients of regular monthly pay cheques, are put on a par with those inhabiting parliament and the formal economy. Consider the following chains that currently shackle South African entrepreneurs:
1. The snobbish attitude of the political and business intelligentsia in this country which at worst consider entrepreneurs to be criminals and at best greedy little capitalists that need to be tolerated as a sideshow. Whichever, they have to be regulated as an irresponsible underclass.
2. All recent national plans. They have emphasised the developmental state which is a euphemism for more chains and more regulation and more economic prioritisation. The people writing these plans have never personally had to create wealth themselves in order to be paid. As recipients of regular salaries, they have no idea of the risks involved in being an entrepreneur. Remember it is economic anarchy in China which has largely contributed to its economic miracle. Nassim Taleb puts it a different way in his books about black swans and randomness: it is all a matter of luck as to which businesses grow into major international concerns and which fail. The best policy is thus to have an environment which maximises the number of new businesses without any preferences for particular industries. The lucky ones will make it and you have no idea beforehand which they are.
3. The vast bureaucracy surrounding the establishment and ongoing operation of a small business in a legal manner. We are now regarded as one of the most hostile countries in the world for entrepreneurs. Most small businesses here only have one employee – the owner. The reason is that nobody wants to take on extra people with the potential hassle of going to the labour court if these people fail to perform. Below a certain size, entrepreneurs should have total freedom to hire and fire as it is their business and their money after all. It is not the taxpayers’ money.
4. The culture of non-payment to small business which thrives in the world of big business and government. In big business, standard payment terms can extend to 120 days while some state entities like hospitals never pay which is why they are in such trouble. The whole process of being approved as a vendor is now used an excuse to defer payment. Can you imagine going to a supermarket and walking out with a trolley full of goods and saying to the security guard that you will pay as soon as the supermarket fills in the appropriate forms to become your approved vendor? Big companies do this all the time to small service providers.
5. The tight-fisted approach of all providers of capital to entrepreneurs in South Africa. The financial universe here resembles a well-heeled club that is happy to extend credit to members. But woe betide uppity non-members who rudely knock on its doors making unreasonable requests to finance small business ventures. What a lack of manners! Why don’t they just disappear and borrow from their equally vulgar and impecunious friends?
I can go on, but we have completely lost the plot. Until we fundamentally change our mindset in regard to entrepreneurs and regard them as the centrepiece of this nation’s future economic prosperity, we are finished. Nigeria will overtake us in the next 10 years as the continent’s largest and most vibrant economy and leave us eating dust.