In an average retail business, overall profit margins can be anywhere between 10% to 20%. That means that the business only makes a profit from four or five days of every month.
If a business loses a working day, through power failures, absenteeism or other unexpected acts, it can cause bankruptcy. The only way to make up that loss is through price rises.
Small problems can become large corrections. Prices are set on the margins, rather than from any large movement. The more power or influence a particular market actor has then the larger these deviations can be, and the greater the impact on price inflation.
In November 2007, Tiger Brands was fined R 98.8 million for collusion in fixing the price of bread. This was only 5.7% of their revenue; other manufacturers – who didn't fez up in time - face fines of 10% of turnover.
This satisfies our natural urge to punish those responsible for causing society harm. However, who exactly is carrying the pain here?
A penalty like that does more than take profits away from the company, it also reduces their ability to pay salaries, do maintenance, or make future investments. They can choose to absorb the cost, by firing people or reducing capacity; or they can pass on the cost through higher bread prices.
In other words, a punishment aimed at the company becomes a punishment that society must bear.
`My name is Ozymandias, King of Kings: Look on my works, ye mighty, and despair!'
Governments do not know anything about competition, innovation or the power of individual investment. The best they can offer is collective blame shedding and the waste of taxpayers' money on populist causes.
As Jacob Zuma said in Davos, "I’m not certain whether when there has been some shortcomings that we should punish people for that. Once decisions have been taken by a collective, you can’t punish individuals as if they’ve done something deliberate."
Without individual responsibility there can be no action. Without action there can be no innovation.
Nothing demonstrates the power of open markets more than the difference in Internet adoption rates. By the end of 2007, 71% of Americans were Internet users, 43% of Europeans, but only 4.7% of Africans.
