Are we doing better than we thought?

I believe that property ownership is an important source of start up and expansion funding for many kinds of enterprises. Authors like Prahalad and De Soto have written extensively on the importance of recognising property as an asset class that allows all kinds of enterprises to bloom.

An article in Fin24 caught my eye this morning. It is about research conducted by the credible economist and researcher Mike Schüssler into property ownership in South Africa. The research shows that black ownership of properties have increased significantly, with 41.7% of primary residential ownership in the hands of black owners. The governments housing programme has contributed to this market, and have assisted many people to own their first property. The report also seems to show that commercial banks have recognised the growth potential in this market, and have assisted with loans to first time and second time buyers. What I find interesting is that the research shows that 31.7% of black home owners also owns a second property, and that 260 000 black households were currently partly living off rental income. Wow, there is an interesting market for you.

Although there are still huge differences in the values of the properties, having something small that belong to you and that has value is probably underestimated.

Are we doing better than we thought? I know that the government is not satisfied with many low cost houses, but I still think that we need to give the government credit here for starting a process that has created a huge asset base in the black communities. Another related question is whether banks are maybe more helpful than we thought. It seems to me that there are a huge number (more black than white) bondholders in the current market. Yes, I know the whites are the minority, and yes, there is still a lot of room for improvement. But please pause for a moment and reflect on how far we have come!

What happens when the leadership signals that the institutions are unfair

I sometimes hang my head in shame. While political and business elites are being prosecuted, senior political leaders step up in support of them. Now I know the risks of posting something related to politics, but I am deeply concerned by this trend. Let me start with the reason – politics aside.

If you start from the premise that strong institutions play a critical role in growth and the reduction of poverty, then the importance of the legal system is clear. But as many clever people have argued, institutions are not only formal laws, clever lawyers and courts. It is also the meta-level attitude of the populations towards the justice and legal system. In South Africa, I suspect a large part of the population, both black and white, do not trust this system. Thus while we have a strong formal legal system, the informal meta level trust in this system is lacking.

While we understand the hesitation of some government leaders to support this same system that has been used in the last few years to try and bring them down, the general distrust communicated EVERY DAY undermines our countries progress. It seems in the past the legal system was frequently abused to achieve political goals – so there might be more to this distrust. Certainly our justice department should be very worried about this – and mechanisms to prevent this should be installed.

And now to the case that prompted me to write this post. It involves John Block, the ANC Northern Cape chairman and provincial finance MEC. Last week he appeared in court on some serious allegations. Despite that fact that many of the accusations relates to his crimes against the government in the province (hence also against the society), senior government leaders came out with almost unconditional support for “their man”.

The Premier issued a statement outside the court: “Being mindful of the principle of one being innocent until proven guilty, and taking into cognisance the legal maxim of audi alteram partem [hear the other side of the story], the premier of the Northern Cape, Mrs Hazel Jenkins, together with the members of the executive council, offers their full support to .. Block, pending the outcome of the court case.

If you read this statement carefully, then even a novice would notice some serious flaws in this argument.
To start with, Block is not innocent until proved guilty. He is presumed innocent unless proved guilty. He is not innocent, he is presumed to be so. This principle, taken with the audi alterem partem principle the Premier cites, means that the state prosecutors have as much right to be heard as Block. Their allegations against Block hold as much weight right now as Block’s protestations that he is innocent. I think the senior leadership of the ANC needs to realise that they cannot fight “corruption” if they constantly undermine the legal system and the legal process. If this is really a conspiracy, then hopefully his legal team would be able to prove this. However, I think it is important that we send strong messages that we support our legal system, and that if he is innocent, this will be proven. However, if he is guilty, then our society should celebrate this. I remember some years ago that senior government leaders walked with Tony Yengeni to prison, almost as if to say that they system was unfair for catching him out. These small acts eats away at the pillars of our institutional system.

What does this have to do with development? Well, if senior officials and leading business people seem to be above the law, what messages does this send throughout the system? I am increasingly detecting a very bad attitude at the micro level, both in business and government.  This is re-enforced by signals coming from our leadership. Many government people that do not care about business or their jobs, they are busy building their own careers (or busy with something else). Many are afraid to be caught out as being incompetent in their jobs, and quickly revert to accusations of racism whenever confronted about their lack of delivery (nevermind service). Businesspeople, especially smaller and younger firms, are heading into the market with an entitlement attitude. Wheeling and dealing to get deals, thinking that dealmaking adds economic value. It hardly does. When will we come to our senses?

In our society, with is fragmentation and developing nature, there are many opportunities for public and private elites to exploit vulnerabilities or opportunities in a way that is not beneficial for our society. There are temptations everywhere. While we are building this new system (which is still young) we are bound to have good people go bad. Nobody stands above these temptations. But we need to know that when you cheat, you will be caught and processed.

For our institutions to work for us, we need to endorse them, support them, and work on our societies meta-attitude towards them. Our leaders should be sending messages saying “we have a fair and just system, and we believe that our system will find the truth”. Somebody credible should stand up and proclaim that if you are dishonest, then you are stealing not from the whites, but from the society. And if you are dishonest, you will be caught, and you will be prosecuted. No matter how important you are now, no matter how great you behaved in the past.

If this undermining of the legal system continues, our country will probably still survive, but not in a just way. This is simply due to the fact that the fragmentation in our society means that some people will still be able to find clever ways of running their enterprises despite the turmoil. This too I see on a weekly basis- business people that are innovating new products, processes, business models – building tremendous and healthy wealth in the process. But this is not enough for the society as a whole, as most people will face a decline in living standards, while those that can raise above the system (by accessing institutions in other societies for instance) will thrive.  If things get too bad, a lot of these people will follow international investors to other places where the institutions, both formal and informal, are working in support of growth and development.

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