Ithala, a bank set up in KwaZulu-Natal offers a clear indication of what happens when political objectives overwhelm business sense. The Sunday Tribune has accused the Ithala Development Bank of providing cash to local politicians and bigwigs without clear business incentives to do so.
Which comes first, business or finance? If you're the government of a failing economy with little business activity and 35% unemployment then the answer must surely be finance. This short-sighted approach can sew the seeds of corruption.
Where there is a great deal of trade, finance moves in to fund new business ideas. As the dotcom era proved: no amount of available capital in South Africa was able to stimulate the same epic development as in California. Not without a similar level of enthusiasm and risk-taking from local entrepreneurs.Despite this lack of enthusiasm a large number of government-financed lending agencies have been set up. With political, rather than business, objectives there is a high incentive to make sure that money be invested, no matter what in.
The Sunday Tribune reports: “Among Ithala's clients are Dr May Mkhize, the wife of KwaZulu-Natal Finance MEC, Zweli Mkhize. As the MEC in charge of the province's coffers, Mkhize allocates development funds to Ithala.
In addition to receiving R13-million in state-funded loans to buy a farm outside Pietermaritzburg, May also applied for Ithala loans for other enterprises, including one that was set up specifically to service municipalities and the government's public works programme. Her partners in this venture were Pretty Mbanjwa and Ntombi Shabalala - the wives of the head of transport, Dr Kwazi Mbanjwa, and head of treasury, Sipho Shabalala.”
In response to what can only be described as a fraudulent conflict of interest, Zweli Mkhize responds, “Any member of the executive, the legislature, municipalities or government departments are perfectly entitled to get loans from Ithala, as is any other person in the province.”
Banks are poor tools of development; their sole purpose is to invest their money with clients who will return on that investment. Their purpose is not to ensure job or business creation.
Any determination that requires a bank to have a development function is going to run into problems. Either the bank will invest in high-risk ventures that lose the capital, or political pressure will result in the money being siphoned off to connected persons.
The real failure here is of the thinking that proclaimed that all that was necessary to stimulate economic growth was the availability of cash.
If a person has a good idea that will clearly make money, and has some proof of this outcome, then there are more than enough investors around who will come forward. Without this, money itself will simply result in indefinite outcomes and a squandering of resources.
Richard Branson’s image has appeared all over South Africa done up as Che Guevara.
Promising a mutiny in the way South Africans can purchase cell-phone airtime, Branson is taking on the monolithic incumbent operators using the language of a revolutionary. His intention is to make money for himself and his investors by undermining the fat profits that existing businesses are already making. The reason he is able to do so is because of free market capitalism which allows anyone to start a business in competition to anyone else and will protect them from anti-competitive behaviour while they do so.
Capitalism is certainly a brutal system; but that brutality is not aimed at consumers. It is aimed at the very businesses that revolutionaries hate so much. Any change in customer preferences (the choices of the proletariat) results in a massive concentration of effort by businesses to keep up with those preferences. Businesses that can’t do so (such as businesses caught using child labour when it is no longer politically acceptable to do so) get left behind and shut down.
Branson has claimed the very principles of subversion promoted by arch-Communist Guevara in the pursuit of globalisation and capitalism. It was Guevara who said, “We must bear in mind that imperialism is a world system, the last stage of capitalism — and it must be defeated in a world confrontation. The strategic end of this struggle should be the destruction of imperialism. Our share, the responsibility of the exploited and underdeveloped of the world, is to eliminate the foundations of imperialism: our oppressed nations, from where they extract capital, raw materials, technicians, and cheap labour, and to which they export new capital — instruments of domination — arms and all kinds of articles, thus submerging us in an absolute dependence.”
The commercial sector appears to have an astonishing ability to reinvent itself and to claim the very criticism aimed at their destruction. For socialist revolutionaries the problem is that they have misidentified capitalism.
Capitalism is not a political system; it is simply a mechanism by which people value things they want and trade for these things from their possessions which they consider of lesser value. A person’s time and labour is sometimes all they possess. If they value it less than any amount of money then they will trade their effort for that cash. The economic thinking behind ending slavery was that slaves should enjoy the right to sell their own labour for a price of their choosing – just like everyone else.
Any act to change the political system of a society will result in an adaptation in the way the effected people value things. A government may decide that food is a strategic resource and a food staple will henceforth be sold at a fixed price no matter what it costs to produce. Farmers will look at that price and, if they realise it will cost them more to produce than they will earn from selling, they won’t farm. Communist governments frequently find themselves buying in vast amounts of expensive food that they used to grow themselves from the very capitalist governments they hate.
Any wild accusation can be levelled at businesses: they harm the environment; they exploit poor people; the steal from the masses. Business owners listen and observe. If they note that the accusations are affecting their business then they adapt. If the adaptation costs them then they simply pass those costs on to their customers. If they aren’t allowed to do so then they quietly close down operations, cut their losses and move elsewhere.
Give businesses a measurable problem and they will solve it. WalMart – a US-based retailer – has frequently been accused of causing environmental harm. A new WalMart in Aurora, Colorado has been built entirely to appease environmentalists: recycled asphalt parking lot, solar panels and a windmill for power, waterless urinals, efficient lighting.
Major retailers have come out with organic and locally sourced produce. Restaurants and coffee shops dutifully sign up for Fair Trade goods. Major manufacturers buy carbon credits. And brands, like Virgin Mobile, have adopted the discourse of anti-globalisation campaigners.
There is no hidden agenda in this. Business owners are quite up-front about their intentions. Firstly, no-one wants to be a target of insults and slurs. Secondly, they want to stay in business and keep providing for themselves and their families.
The customer is always right and, if you like the teachings of Che Guevara, then the teachings of Che Guevara you shall have.
People may fight for the cause of socialism, or freedom, or democracy but – while they’re out fighting – someone is going to have to stay home and make sure the revolutionaries are fed and clothed. And they’re going to charge you for it. Any attempts to stop this process results in a lot of people sitting around waiting for the government to provide.
If revolutionaries really want to put business under pressure then free market capitalism is the way to do it.
Millions of people are missing out on vital aid despite record-breaking donations from governments and the public, a report says.
In 2005, emergency aid reached at least $17bn (£8.6bn) - outstripping any other year, the World Disasters Report says. But while high-profile cases such as the Indian Ocean tsunami and Hurricane Katrina attracted donors, countless other crises were neglected, it says. It calls on governments, aid agencies and the media to redress the balance. More than 99,000 people were killed and 161 million affected by natural disasters last year, according to the International Federation of the Red Cross and Red Crescent Societies.
In the late 1980's, towards the pathetic end of the government monstrosity known as Apartheid, Kentucky Fried Chicken (KFC) opened a franchise in Gugulethu, an informal settlement outside Cape Town. KFC is astonishingly popular amongst 'black' South Africans and they make up more than 80% of their client base. Business centre franchises sport long queues at lunch times as workers wait to order their budget specials. It seemed a rational decision to place a KFC inside one of these townships where the bulk of their clients live. It didn't work.
Far from offering a consistent standard, KFC opted for a 'light' version of the real thing. The thinking was that, since the area was impoverished, it would be better to offer a scaled-down version of their service.
Poor people value their money more than rich people. It stands to reason; they have less of it. Brands are also far more important to the poor than they are to the rich. If you have very little money then you don't risk it on some untried product. You spend it on the tried and tested and reliable: famous mainstream brands.
Being this value conscious the poor residents of Gugulethu quickly realised that they were being offered a product much less than the real thing. They stayed away and preferred to shop elsewhere.
Now we have alternative technology developments for the poor. From MIT's $ 100 notebook, to cheap alternative power supplies and scaled-down communications services. They won't work.
Poverty is not caused by a lack of infrastructure. That is simply a correlation. The US did not become wealthy because they had an advantage in technology - that came later. Poverty is caused by a dearth of creative thinking and local ambition to succeed.
Cheap offcuts do nothing to stimulate that ambition. What they do achieve is a reinforcement of the gap between rich and poor. They turn poverty - a problem of slow development and limited initiative - into a chronic disease requiring ongoing medical support.
It is almost as if rich countries are saying to poor countries, "We're really sorry you're so incapable. Why don't you play with these toys that are almost like the toys that grownups have, only they don't work as well. We'll come by and visit when we're not too busy."
Children play with toy-versions of grown-up tools knowing that they will get a chance to use the real thing. The poor are expected to use scaled-down versions as a substitute since they are deemed incapable of development.
If MIT and other organisations really aim to assist the poor then they would develop their products to be aimed at the rich first. Once they become cheap and mainstream then the poor will buy them on their own. Otherwise the products will become as irrelevant as the BayGen company that developed windup radios as a substitute for battery-driven ones.
Far from being accepted by the poor, BayGen radios became a retro-fashion accessory for the urban rich.
Development, as a discipline, is a relatively young phenomenon; the idea that we, as benevolent outsiders, should intervene in the lives of a functionally distinct group of people to assist them in reaching some goal. Development sits uncomfortably alongside the objectives of the capitalist community at large. Capitalists enjoy the fruit of development but developmental organisations consider capitalists to be unworthy unless as a source of cash.
This creates an awful divide between countries and communities that develop on their own, and those that receive coaching from the outside. Some of the poorest countries in the world are being smothered by the kindness of strangers.
Development, as a discipline, is a relatively young phenomenon; the idea that we, as benevolent outsiders, should intervene in the lives of a functionally distinct group of people to assist them in reaching some goal. Development sits uncomfortably alongside the objectives of the capitalist community at large. Capitalists enjoy the fruit of development but developmental organisations consider capitalists to be unworthy unless as a source of cash.
This creates an awful divide between countries and communities that develop on their own, and those that receive coaching from the outside. Some of the poorest countries in the world are being smothered by the kindness of strangers.
Imagine, though, that the roles were reversed. Imagine that, one day, an alien space ship were to be seen hovering in the sky over New York. Imagine that, having studied us briefly, a sentient race chose to contact the United Nations and offer to become trade partners.
Perhaps they would have had a similar development path to our own; full of violence and incident in the beginning and then a gradual realisation that trade between mutually strong communities creates vastly more wealth and ideas than does one nation conquering another.
We would be entirely dependent on their technology to trade with them. Overnight we would recognise our own inferiority and poverty relative to the opulence and grandeur present in our new visitors.
You could see them pondering ways in which to assist us to reach a level of development suitable for trading with them. Imagine now that they had a similar attitude to less developed nations that we have to ours. “My word, but they are backward. We reached this stage of development a thousand years ago. They are corrupt, their systems of governance are expensive and patronising, their infrastructure is nowhere good enough. They have terrible working conditions; they work for slave wages for minimal benefits. We must insist that they adopt our work practices, plus, we think that an excise tax on cheap imports would be a good idea.”
Perhaps they too have a vibrant development sector. Students and their equivalent of hippies turn up all over the show. Rural Poland plays host to thousands of eccentric aliens who enjoy the climate and set up schools where they teach in their own language in a way totally foreign to the locals. They work for free. Polish kids decide that the alien schools are much more interesting than their own schools, so they abandon them. Polish teachers migrate towards better jobs in New York. Sensing that things are not going well in Poland, the aliens offer cheap loans to the government – so much money that they don’t collect taxes anymore. A gradual hollowing-out of the state follows. The aliens can’t understand what is going wrong. Clearly the Polish are just lazy and stupid. In a few years they’ll need a debt write-off.
This can go on and on, and wrong and wrong.
Development, uncoupled to any clear objective, isn’t going to achieve anything other than a gradual senescence. It is like holding down a drowning man while making sure he has a pipe in his mouth so he can breathe.
If development is seen as magnanimous but totally disconnected from our daily lives, then we will waste it. If development is seen as a means towards trade and investment then it would look completely different.
aloft: the whythawk blog 
Ithala, a bank set up in KwaZulu-Natal offers a clear indication of what happens when political objectives overwhelm business sense. 
Millions of people are missing out on vital aid despite record-breaking donations from governments and the public, a report says.
Learn about the Spyder Curve
