Bobby Godsell: The colour of capital

It is ironic that, just as the apartheid edifice began to crumble in the 1980s, so too did a quite new form of capitalism begin to emerge in the global community to which South Africa would return a decade later.

Industrial economies disappeared and were replaced by a services-dominated (often financial services-dominated) economy. Workers became consumers. Growth became driven by consumption, not production. Larger and larger proportions of economic growth became debt or credit funded. The deepest changes were to be seen in the patterns of capital accumulation and in the role of the firm, company or corporation. Whereas in earlier stages of industrial society capital or investment was predominantly the activity of the rich, from the mid-20th century the contractual savings of workers have become the dominant source of investment.

Initially, both pensions and life insurance were housed in trusts and societies, and were managed with conservative mandates that measured performance precisely over the lifetime that this financial product was meant to serve. This conservatism was often enforced by state policy prescriptions that required these kinds of savings to be invested in safe and secure instruments such as government bonds.

The deregulation and individualisation of employee pension savings changed all this. This massive savings flow was now free to be invested in pretty much the complete range of investment products, including many that were quite new.

A similar pattern of change occurred with life insurance, the other most common working-class instrument of savings. With the demutualisation of life insurance companies, these mutual societies, in which those who lived contributed to the benefits of those who died, generally became listed companies with shareholders who expected to earn significant returns.

These two changes in the character of capital required a new breed of manager – the fund manager. This new manager is charged with the allocation, acquisition and disposal of investment instruments for the monthly massive inflows of contractual savings. They win the right to do this through their performance record.

Let us now consider the changes in the role of the firm, company or corporation. In the first phase of industrialisation worldwide, the first great companies had a family nature. This was the time of the Rockefellers, Morgans, Mellons and Fords in America – and the Oppenheimers, Ruperts and Wesselses here in South Africa. As these companies grew in both size and ambition, so families turned to the public to raise more capital. Companies became publicly listed and were governed by a board of directors increasingly independent of the original founders.

Now we have entered a third phase: companies compete for funds from fund managers. These fund managers have more influence over their strategies, performance and character than do either the original founders or the boards. Funds with significant stakes can, in effect, fire chief executives and board chairs.

For example, when a major company gets into trouble today (let’s take MTN as an example), it is more likely to be called to account by a large institutional investor (or fund manager) such as the Public Investment Corporation, with its R1 trillion of invested funds, than its founders or board.

What is the significance of this new capitalism in relation to dealing with our country’s legacy of a racial past?

Our economy is a small ship floating on a global sea. We can neither ignore nor defy fund manager capitalism. This much more diverse, metric-driven pattern of economic direction has enhanced transparency and, sometimes, improved efficiencies. Yet the behaviour of fund managers has made economic and social goals, which must be addressed over years and decades, hard to address. Also, it has isolated risk and return in a way that earlier industrial barons would find almost mindless.

So, as I attempted to attract these new fund manager captains of capitalism into holding AngloGold shares, I would have to address their fear of political instability, fed at least in part by continuing poverty. On the other hand, if I were to report a reduction in wage costs through retrenchments, this would be viewed by the same managers as a plus. The trade-offs of nation formation – and company building, for that matter – do not rate well in fund manager metrics.

Of course, among fund managers there are many who think longer term. And there are those who look for investments where stability, sustainability and even social justice are required. These are the things demanded by the social and ethics committees provided by the boards of companies in terms of the Companies Act.

We need this type of character in our economic leaders, from fund managers to board members to trade union leaders and leaders in broader society. This includes achieving societal consensus on a decent standard of living and the value system that should characterise our workplaces.

Fortunately, South Africa is not alone in its concern for social cohesion and social justice. In the wake of the 2008 financial collapse, leaders from all sectors of society and in many countries are looking for growth that is more inclusive and fair.

- Godsell, a former chair of Business Leadership SA, made this edited contribution to Whiteness, Afrikaans and Afrikaners: Addressing Post-Apartheid Legacies, Privileges and Burdens, a publication to be launched on Thursday by Mistra and the Nelson Mandela Foundation

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