Corruption is logical or why all state and private partnerships will fail.
We’ve seen it all before. He stumbles in wearing a Breitling watch, or some other monstrosity of excess. An over printed Italian golf shirt, jeans that don’t fit exposing his ass crack, an iPad, and a cross body bag from some luxury brand he can barely pronounce. Malusi Gigaba has it, so he needs it.
He’s a businessman who can’t spell “business”. His wealth is directly tied to his relationship to politics. He has nothing to offer outside of a rolodex of names and an indirect route to some politician’s bank account. He knows almost nothing, squints at his iPad and is repeatedly caught staring at women in an inappropriate manner. He is your partner, your damn BEE partner!
He offers nothing. Rarely arrives on time and makes repeated absurd demands of you with the promise of government millions. What makes him truly awful is that he delivers. The son of a bitch gets the deals done, despite them being patently irregular and obviously fraudulent. He gets the deal done and your firm can now provide R20 rolls of toilet paper to the state with a 500% profit margin! All it cost you was 4 board meetings a year, a Range Rover and sexual harassment settlement. A high price to pay, but worth every penny.
I remember this caricature and I still see him all the time. However, the disturbing aspect of all of this, is that this is a microcosm of the macrocosm. The state will play this role all too often with a corporate partner. I’m not here referring exclusively to the egregious and excessive deals of the BOSASA era. No instead I’m referring to something more dire: almost all state engagements with the private sector.
When one unpacks the nature of the relationship between the two entities – the State and the Private sector - and the fundamentals of either one, it becomes clear that the State cannot have equitable relationships with the Private sector. Destined to fail, almost every deal the state does with the private sector is designed to disadvantage the state.
So, sit back and let’s unpack how public and private partnerships are doomed from the outset.
Let’s begin by defining all the participants in a Private-Public partnership.
There is a State – the government. State actors – government employees. The Corporation and the Corporate actors – the employees of the Corporation.
Corporations at a fundamental level are designed to do one thing: create value for investors.
It’s incredibly simple but focused.
The state at a fundamental level is designed to do a multitude of things, but not one singular thing.
You can see this most palpably when one tries to even define what a state is.
Whether you subscribe to the YouTube channels of Max Weber or John Locke or even Hobbes, the definitions, purpose, and objectives vary considerably. But let’s keep it simple and use the Wikipedia definition: “A state is a centralized political organization that imposes and enforces rules over a population within a territory”.
This sounds less like a government and more like a surgical procedure of some kind.
A corporations’ purpose is clear and simple, a state’s purpose is a debate waiting to happen.
Just by examining their definitions, it becomes clear that the corporation is more focused than the state. This focus allows it to out-maneuver the state repeatedly. The state has multiple considerations to make, whilst the corporation only has one.
The state does not have the same North Star that focuses participants and stakeholders.
Some partnerships may have specific outcomes, but there is no Macro-Overarching philosophy that guides state actors. Whereas on the corporate side it’s simple: make as much money as possible whilst losing as little as possible.
Therefore, before the first letter of a document can be typed, one must always be aware that the corporate actors have a much higher chance of achieving their goals than the state actors. It’s kind of like that old Sun Tzu saying, “a healthy man wants many things a sick man only wants one thing”.
The state actor wants many things, the corporate actor only wants one thing: create value for investors. Therefore, their focus is much stronger and more distilled.
These partnerships at there outset are always a win-win scenario - the state will work with large accounting firms to create a pipeline of Charted Accountants and the firms will train and empower these graduates for the global and local commercial market.
This in principle sounds simple and in no way malicious. But over time one will note that the corporate will update its position and leverage and use this position to extract more value from the relationship. Insidious versions of this can be things such as:
- Pay graduates more – this sounds like a good thing, but it can be deeply problematic from a macro perspective.
- Encroach on standards; Offering to take over government services to promote efficiency.
- Lastly simple fraud; here’s looking at you KPMG!
Now none of these things seem particularly insidious or problematic at face value, but become so when the corporation is the active party and the state the reactionary party. The corporations’ actions are directed by a simple mandate, whereas the state is guided by a policy outcome and not the macro effect of this policy. The state in this instance has a specific outcome – create more jobs/empower more graduates. But it does not evolve its stance as the policy is enacted.
Without an update on the policy as it is executed the state creates conditions for the corporate actor to design strategies that hyper prioritize the state’s objectives in the short term: create more graduates. But then have a second-order effect that benefits the corporation: overpay the graduates so that they cannot find employment in any other sector unless it pays as much as corporates in that sector.
This is a simple example but if one abstracts it to other types of initiatives it becomes clear how the state will constantly have their initial objective met. But not the outcome that is wholly beneficial to the state. A similar wildly scalable program was the British Raj’s program of rat capture that created a massive rat breeding market.
To sum it up, a State cannot engage in an equitable partnership with a Private organization unless the state is willing to update its objectives and outcomes as the data from the program is streamed in. Then update the outcome and mandate as the problem/solution evolves. If the state does not do this, the corporation will manipulate the program to benefit the corporate in perverted downstream ways.
Why is this? System design?
My initial assumption is that a corporation is:
1) more efficient than a state
2) A corporation can attract the best talent
3) A corporation is more focused
4) A Corporation can incentivize performance and most importantly a corporation is run by a concise simple philosophy: create value for investors.
A state actor works in an inefficient space paralyzed by political interests, they are rarely the top talent in their field, and they have no real incentive for performing well. One can move up the rungs of the state as in corporate if you’re a great employee, but its significantly more challenging.
Once again before the engagement can even begin the actors come from fundamentally different backgrounds and have two fundamentally different objectives.
The corporate actor has a much greater chance of success because they work in a more efficient environment, have clear incentives, and are not ideologically hamstrung in the pursuit of their goals.
Now imagine this same scenario played out repeatedly via the State and Corporates. Whether it be BEE legislation, employment schemes, share equity schemes or even standards and requirements around virus mitigation. The state sets a mandate. The corporates abide by it and then creates systems that benefit the corporation far more than the actual nation and the state will mandate the exploitation, so it goes by in plain sight. The most gratuitous recent example of this was Covid testing sights and their exploitation of citizens by charging 50% more than they should have. The state mandated testing and Testaro provided testing with the caveat that they will overexploit people to test.
Every time we see a state and corporation engage one must always remember that it’s almost impossible for the state to gain an equitable position in the engagement. The corporate actor has a vested interest in the agreement, whilst the state actor has at best a philosophical/ideological interest in the project, but it’s success will have no bearing on their well-being.
State actors with no accountability
“Show me an incentive and I’ll show you an outcome”.
- Charles Munger
For state actors in Private-Public partnerships the only real incentive is one of prestige. Whereas the corporate actor has the very real incentive of, money.
In the state context, the project being a success will reflect well on the highest-ranking officials and they in turn may be rewarded with more power. But this is a maybe. The corporate actor will most likely be rewarded if the project is a success for their firm. If the current employing firm doesn’t reward the individual, then some aspect of the market will. The skillset is valuable and the market vast. Therefore, the corporate actor has a much higher chance of gaining some reward for their work – the skill if rare and valuable will be valued by one of his firm’s competitors and therefore they can be assured of a reward. The state actor or Minister is only available to a market of one: the state. Other departments in the state can value the actor in question, but the market for talent between departments and organizations is nowhere near as competitive as for corporate employees. Which results in some perverted outcomes, the most notable being corruption.
If you were a state actor and you knew that your performance in no way affected your employability, what amount of effort would you put into your job?
If you were an ambitious state actor and you wanted to climb the ranks of the state, how would you do it knowing that your value to the state was more orientated around your political associations than with your actual abilities?
You would have very few options barring sycophantic behaviors and games of public prestige. Flatter your seniors and steal as much airtime from the media as possible to bolster your brand and make your visibility a confirmation of your diligence. CC: Fikile Mbalula
It’s juvenile and asinine but barring clandestine schemes of betrayal it’s the only effective way to climb the hierarchy in a non-meritocratic society.
There is another way as well.
You could look at actively trying to exploit capital from corporate partners in the form of bribes and then distribute those funds higher up the chain of command to show how valuable you are to your senior partners and employers.
This seems to be the order of the day for the current dispensation and the path to success for the truly ambitious and morally bankrupt. The most obvious examples of this are Mr. Ace Magashule and Zweli Mkhize. Two ferociously ambitious men who did everything in their power to stake their relevance in the party via a combination of corruption and skullduggery. Are they malicious morons? Mr. Mkhize is many things but there’s little evidence to suggest he is intellectually incapable, he's a doctor and he’s managed to perform corruption in broad daylight for years. Whereas Mr. Magashule is to intelligence what Greta Thunberg is to the fossil fuels industry: diametrically opposed.
This lens can be applied to all Private-Public partnerships. And when seen through this lens it becomes obvious that almost all Private-Public partnerships will erode the state’s goals or achieve the state’s goals superficially to enrich the corporation. No one does this more efficiently than the notorious Bombela Consortium that manages the Gautrain. Even in scenarios wherein the state has actors all deeply committed to the outcomes at hand, the state must function in two roles, partner and policeman. Partner in that they provide some form of support, and Policemen in that they need to examine the entire deal from a long-term perspective and what the second order effects will be. The corporate actor simply must figure out how to extract the most amount of value.
Functioning as a Policeman and Partner is a tall task for a motivated and dynamic team of state actors, but unfortunately there are very few people in state organizations who are dynamic or motivated.
And here’s why:
Corruption is a deeply logical act also Shitty Managers create Shitty work environments and lose good people
The state like corporates operate in a dynamic free marketplace for talent. Like all employers they need to provide the greatest incentives to attract the best talent. This is difficult in a local market, but borderline impossible in a globalized market for talent wherein you can only really hire South African talent. And that talent can be offered more capital and incentives by corporations. This results in the talent being primarily sub-par to the rest of the market, barring jobs that come with massive amounts of prestige for their industry: Law [Constitutional Court Judges and their Clerks].
So, the state now has sub-par talent, talent with no incentives and no consequences for success or failure. The corporation has top market talent, that’s incentivised, and has a macro philosophy.
We have the best the market has to offer versus the dregs. And the dregs are negotiating on your behalf!
The dregs in this scenario are your state employees, and because they have skewed incentives the deal becomes less about state and corporate and more around the state, the corporate and state actor.
The corporate actor is not included here as his incentive is directly tied to his organization, the same cannot be said of the government employee.
The engagement goes from a two-party engagement to a three-party negotiation when one understands this. A three-way deal: a deal between the corporation, the state, and the state actors. Depending on the partnership or deal in question the corporation can apply pressure on the state actor in the form of incentive - bribery - to make the deal more favorable to the corporate, here’s looking at you Gwede and Shell!
The state actor has no reason to not take the incentive – corruption – as they will receive the same outcome/salary from the state as their employer regardless of who they partner with and what the outcome is.
So, it only makes logical sense for the state actor to take the funds and be corrupt. For no other reason that the structure of the deal itself lends it to corruption. The state actor is not irrational or greedy, he is a logical economic actor doing what’s in the best interest for him: creating more value for his investors. His investors in this case being his employers and himself.
Simply put we’ve built corruption as a feature into Private-Public partnerships and if this feature fails, we can always rely on a combination of entropy and incompetence to provide the corporation with the all the leverage it needs to continue delivering value to its investors.
So, corruption is not a bug of this system but a feature.
So we’re fucked?
It’s very hard in life to see the water. Imagine you’re a fish in the ocean, swimming around, trying to work on your mental health and thinking up ideas for a side hustle, but ultimately, you’re just swimming through water. Does the fish know it’s in water or is it so acclimatized to water that it forgets its existence? In the same way that a dog loves breathing but does not ever think it’s breathing air in any capacity.
The South African populous and state has the same problem, we complain about corruption as if it is a scourge or virus riddling the body of the nation. Corruption is an outcome, not a policy and to solve for corruption you need to solve for the system it operates within.
We can no longer allow the State to operate as our incompetent BEE partner that consistently enriches itself but does nothing for the community it represents. This is the reality we all live through and are affected by. The issue isn’t the people in power – okay it is, but not only that – the issue is the fact that we have systems that don’t account for this and expect positive outcomes despite the system being designed for negative ones.
A prescribed specific solution to this problem will be plagued by the same inequities the previous one had. The issue is not that the solution we have is poor, but rather that they are not dynamic.
The current system is static, but the actors are active and consistently trying to exploit it for their benefit. Creating an arms race where the state creates a policy/program and then private corporations work tirelessly to find exploits to enrich themselves. The corporates update their strategy according to data points, but the state doesn’t upgrade the policy to account for the new strategies employed by the corporation.
Any new system like an old one will be exploitable at some level and corporations will hire bright, energized, and motivated young men and women to come up with problematic solutions to overcome this challenge. The real solution is a change in the framework for the State in the creation of its systems. We should move away from a system of one solution and move to a framework of experimentation that reviews systems and creates incentives for astute and meaningful work.
An example of this would be a third-party state funded body that reviews Private-Public partnerships. This non-political body would highlight inequities in the short and long-term and codify this knowledge so the same mistakes cannot be repeated. This would help us create a more iterative model for policy and execution and can help us solve the incentive problem that makes State actors so susceptible to corruption. A radical idea could be to create an anti-corruption fund wherein the State creates a fund that pays out large sums of capital/government bonds to State actors who perform their jobs incredibly well and are not corrupt. This may seem morally problematic; however, I can assure you by not taking a direct head-to-head approach with corruption, corruption will win this race. Behaving correctly is expensive, behaving selfishly is a genetic condition, therefore let’s weaponize this condition in the favor of the whole country not a handful of individuals.
An iterative framework would be devoid of ideological corruptibility and would focus on outcomes versus optics - Even though this would be a philosophy of a utilitarian nature. Most importantly the review mechanism would ensure that we wouldn’t repeat the same mistakes twice. Essentially a body that watches the Watchmen. What outcomes will come from this are unknown but what would be guaranteed is that the same forms of corruption would not be propagated, and Corporations would not be easily and consistently be able to out-maneuver the State at every turn. Performing this action would not allow the status quo to ensue and would see us no longer see the State as a trough from which morally bankrupt and privileged pigs feed from for self-enrichment. To conclude it’s critical one remember that neither the state actor or the corporation are in any way evil, they are rational actors in a game and are using their savvy insight and incentive structures of the game to maximize their returns. The issue is not the actors but the game itself. Let’s change the game and manifest more efficient mutually beneficial relationships between the State and Private individuals and bodies.
So next time you see the state enact a new program with Standard Bank just know Standard Bank is taking the state for a proverbial poes even if their CEO is a black male who sounds like a middle-aged white woman. We don’t need better leaders – okay we really do, but before that – we need better systems.