Walking through London a week ago, I was conscious of how much of the city is built on foundations that are hundreds of years old.
The London Underground – the world's first inner-city mass-transit underground railway system – first opened in 1863. The underground allows 3 million people a day to get in and out of the city.
The benefit to London of such infrastructure is incalculable and has been vastly exceeded by its original costs. At the same time, the miracle of London's current success depends on the continued functioning of the train network. If it stops working so will London.
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.
