Moving from Conventional Capitalism to Inclusive Capitalism

SpeechesAddress to the Governance Conference by Dr Reuel J. Khoza (Chairman of Nedbank Group Limited, Aka Capital)  I  22 May 2017


Cardinal to the imperative of moving from conventional to inclusive capitalism is the core challenge of humanising capitalism. This begs the question “Why move?” What is so repellent about current capitalism as currently manifest in South Africa? What is the current reality and what is the desirable destination?

I submit that the following observations about conventional capitalism in South Africa are pertinent, viewed from the majority of South Africans:

  • Political liberation has not brought in its wake economic emancipation. The bondage of unemployment and grinding poverty is very real.
  • Recent studies corroborate that discrimination based on race and gender, at times subtle but often quite blatant, is still the order of the day in South Africa.
  • Racial capitalism is still a reality in South Africa.
  • Perceptions reflect a high level of resistance towards business and the free market which is perceived as being exploiting by nature. These perceptions also include the broader socio-economic and socio-political environment.
  • The perceptions exist that the free market has very little for the worker and is mainly conducted for the benefit of (whites) management, who are also viewed as being the owners of business.
  • The perceptions reflect a feeling that the outputs and benefits of business have very little direct benefit for the worker as supplier of labour inputs. For this reason there is very little motivation for the worker to improve his labour inputs, since the perception is that this would really only benefit management and government who are already the major beneficiaries of the business system.
  • Particularly the semi-skilled and unskilled workers feel that they are being severely discriminated against.
  • The vast majority of the worker group is black, which has important implications regarding white-black relationships. It causes a definite perception of exploitation of black workers by whites.
  • Productivity is hampered by perceptions which cause the workers to have a very low commitment to the welfare of business in particular and the economy in general.
  • The economic goals of stability, productivity and development cannot be successfully pursued, unless the perceptions of exploitation and discrimination are corrected.
  • These perceptions make the development of an environment for constructive negotiation and the pursuing of all participants’ benefits impossible, unless corrective strategy and action is taken as a matter of urgency.

The Challenge of Moving to Inclusive Capitalism

Protests are sweeping the world today. The target is capitalism. Yet there are many brands of capitalism and we must be careful not to lose faith in the system because of its wrongs. We should be trying to put it right for the benefit of all.  Practically speaking, capitalism is not going to go away. The world’s biggest and most productive nations and groupings – China, America, the European Union and the BRICS – are committed to it even though, in the current crisis, capitalism is being shaken to its foundations.

I suggest that the economic system we have is the only one the world is likely to have for generations to come and that we must make the best of it.

That is not fatalism, but realism. The best of capitalism is in fact not bad. It has endowed humanity with the benefits of production, consumption and quality of life that no other economic system comes close to. But there is a downside of capitalism that we must confront and defeat.

I understand that one in six Americans, the richest country in the world, the United States, lives in poverty. In South Africa, that figure is 50% - one in two! (according to the CIA World Fact Book). The SA Market Research Foundation has found that, between 2000 and 2006, a large number of black people moved into the upper middle class, but we are still saddled with a “second economy” in which huge majorities live in grinding poverty on less than a dollar a day.

Is Capitalism failing our country and failing humanity?

Donald C. Dallas observes:

“It is just as illogical to suggest abolishing capitalism because it hasn’t abolished poverty as it would be to suggest abolishing the churches because the churches haven’t abolished sin”.

This quote from Donald C. Dallas suggests that the challenge is not to abolish capitalism but to humanise it. I believe that it is first and foremost a leadership responsibility to bring about a change in attitudes, practices, oversight and behaviour. The values of true free enterprise – in which we all enjoy economic freedom – must be affirmed by business and political leaders. They must ensure that the enabling environment is created and sustained to provide equal opportunities for all.

We must humanise capitalism to serve all. I believe that African humanism, or the spirit of Ubuntu, has the essential formula to change and improve capitalism and that we in South Africa can lead the way, not just locally but globally. Ubuntu emphasises our common humanness, and on this basis it prompts us to act ethically towards others, empathise with them, and rationally seek common ground or consensus for decisions and actions.

Business and political leaders need to embrace these principles for the good of all – and I believe that the current crises of capitalism, along with the worldwide protests flowing from it, will force a re-evaluation of the way that corporates and governments behave. Leaders will have to set the example and show that they are both responsive and responsible to the stakeholders in our economic system.

What is wrong with the capitalism that we have today? In a nutshell, capitalism has degenerated into unfree enterprise on a narrow base that serves the interests of the rich – particularly those with close links to government. The corruption of good governance through selfishness and unrestrained greed, combined with government by elites in the interests of elites, goes by the name of plutocracy. It is plutocracy – rule by the wealthy in cahoots with corrupt self-serving governments – that is destroying faith in capitalism.

Freedom and fairness were the cry of the Occupy Wall Street movement which is now reverberating and resonating in many nations of the world. My impression is that these protestors are not generally anticapitalist although there are strong left wing and anarchist elements among them. The movement could wreck itself. But the protestors are fed up with a lousy deal. Many have suffered the loss of their homes and jobs and human dignity while corporate executives continue to enrich themselves with outrageous payouts. It’s simply immoral.

On our own streets, the call for jobs, education and opportunities has led to the ‘long walk for economic freedom’ in which young populists have attempted to seize the moral high ground. The high ground, however, does not belong to those who crave to nationalise the economy – which would seriously undermine wealth creation in South Africa. The campaign is already deterring foreign direct investment and shaking confidence in our future.

The high ground belongs to those who believe that our nascent democracy can deliver a better quality of life for all if we encourage individual and collective enterprise. Capitalism is the only proven economic system that unites the incentive of the profit motive with the delivery of goods and services to meet the demands of all. Capitalism should not be overturned but broadened to truly serve all.

The system is robust and will continue. What has to happen is that a much more equitable delivery of benefits is required for stakeholders in our modern world.  They demand no less. Only good corporate citizenship allied to principled government can bring this about. We have the means to serve our communities; what we need is the resolute drive.

In the Arab Spring we saw how movements that were predominantly driven by the call for freedom, human dignity, and economic opportunities overthrew dictators who had been comfortably ensconced for decades, ruling through fear but claiming legitimacy for themselves. That claim was falsified by mass turnouts against the regimes.

When corporations are in cahoots with the state, ordinary people lose out. They cannot gain the benefits of democracy because their votes count for little so long as plutocrats rule the roost, with all the corruption and criminality that goes along with it. My argument is that corporatism has a good side as well as the bad one that we have seen. The power and resources of corporates can be applied for the common good rather that the gross enrichment of the few.

Plutocrats care nothing for social justice and they have no strategy for overcoming poverty and joblessness. In opposition to plutocracy, I believe that corporate communalism is the way forward – not communism but communalism based on the community responsibilities of corporate entities. Corporate leaders need to understand that their businesses are ultimately only sustainable if they care for the wellbeing of the communities upon which business depends.

Communalism in business has three aspects: first of all it values its stakeholders as participants in the business. Secondly, it treats profits, people and planet as the three basic ingredients of sustainability: the triple bottom line. And thirdly, by serving stakeholders with long term sustainability in mind, business becomes inclusive, transparent, accountable, and fundamentally humane.

This is not the place for me to go into detail about stakeholder capitalism. I have done so in my book, Attuned Leadership, where I argue that business must be consultative not just for the sake of appearances but because it really matters.  The legitimacy of business is at stake. You must confide in and work together with your employees, customers, surrounding communities, NGO activists, the media, government regulators and foreign interests.

All of them need to be kept informed and asked how the business should proceed. Ultimately it is up to business leadership to spell out the way ahead and take those bold, sometimes risky decisions that lead to success or failure. (The model of the African village chief sitting under the big tree with his advisors and listening to the assembled people is a good one for business. It ensures the legitimacy of subsequent decisions and actions.)

To speak of humanising capitalism may raise eyebrows among those who think you cannot take a bad system and make it good. If the system is bad to start with, any so-called reforms could make it worse, for example by helping exploiters to exploit others even more efficiently!

Our history in South Africa makes us well aware of the social responsibilities of business. In a word, business must set out to be inclusive and if it does so it ensures its own future while at the same time showing the human face of capitalism.

A proverbial expression from African wisdom is pertinent here:

“Ditau tsa go tlhoka seboka di sitwa ke nare e tlhotsa”. (An uncooperative pride of lions cannot bring down even a limping buffalo).

African lions hunt in a pride: they are cooperative, coordinated and goal focused, and willing to sacrifice themselves for the sake of the pride. Naturally, they serve themselves too by getting a good meal. The cardinal motif here is inclusivity: not just all for one and one for all, but all for all. African humanism as an African life philosophy advocates this. The lessons we learn from a lower but powerful species, the lions, have to be refined for African survival.

Yes, we have had to survive, through ages of slavery, colonialism, apartheid, and now a world system that seems to sideline us in the relentless pursuit of profits for the rich nations. We now inhabit a world system that seems, objectively, to be something governed by iron laws of the market. No quarter is given to anyone.

This is the inhuman face of capitalism and we are led to believe by hardline economists that we must accept the brutal rules of the game or perish. But is this really so? From an African perspective what is lacking is a sense of the common humanness of everyone across the globe. It is our human commonality that should form the foundation of a more caring and humane economic system.  Indeed, humanity should not let itself be pushed around by so-called “market forces” that are somehow divorced from our real needs and values. We should not see ourselves as victims of circumstance:  we make the circumstances!

As a company director myself with long experience in management, my own attitude is that executives must be compensated according to market levels, but not excessively so. Personal greed is a very bad thing and should not be encouraged by boards. But payment for services rendered in growing a firm, in making a success of a top position, and leading effectively so that company culture becomes innovative and enterprising, deserves just rewards. Just rewards and not excesses! The genie-coefficient in South Africa is still way too wide. It has to be narrowed. Courageous stakeholder encouragement is called for.

This is not an easy argument to make to those who have lost their jobs and homes and lack any prospect of personal advancement. But the argument is true and logical, and I believe it will make sense to those who want the benefits of capitalism without plutocracy.

In many respects the Occupy Wall Street movement echoes the Arab Spring, and it has further echoes on our own streets in South Africa. Youth in particular are frustrated and feeling marginalised because job prospects are few and without a job one lacks human dignity. The result is social turmoil. Rather than calling for nationalisation, leaders should be strategizing on how to liberate the power of youth to engage in productive business.

Free enterprise and its market mechanisms encourage us to grow, to innovate, to become entrepreneurs, and to keep learning. Ultimately this enriches the lives of others with new ideas, new products and new processes. When everyone is thus motivated, progress occurs on a broad front.

How many of our youths know and understand these principles? I suspect that years of socialist rhetoric and the idea that government should solve every problem and ensure jobs for all has induced a psychology of dependency in our youth. It is not government but private enterprise that is the main engine of job creation and development.

I strongly believe in self-improvement. This includes the profit motive but it is not limited to making money. In the final analysis a productive life is one in which you self-actualise. You realise your own potential. You empower yourself, and in the process, you empower others to follow your example. Intellectual capital is key.

I strongly believe that capitalism is the system that marries individual incentive to economic development. We desperately need to remind ourselves of the fact that communist and socialist systems have shown us that if you divorce the profit motive from work, you get economic stagnation. Worse, a massive bureaucracy is required to run nationalised industries, becomes costly, top-heavy, and corrupt.

In South Africa, free markets are distorted by tenderpreneurs who make use of government connections to gain lucrative contracts. It’s a form of plutocracy:  a distortion of free markets by those with access to power and wealth.

There is an African proverb which translates: “The best time to plant a tree was 20 years ago. The second best is today.” We may have lost years but we can catch up. If we wish to create conditions that are conducive to private sector activity and economic development we must convey a tough but necessary message to the populace as well as those who run the economy.

In my view the only dynamic likely to transform the situation is leadership. If we look to the system to reform itself we will wait a long time and surely be disappointed. If we look to leadership to champion change by inspiring a new vision of capitalism’s human possibilities, we will get somewhere.

I hasten to say that the leadership I have in mind will not be dictatorial or rashly populist. It will not dictate to the rest of us what is to happen, or, conversely, take advantage of rebellion from the bottom up to impose mob solutions. It has to be a leadership that emerges from within communities – what I call Attuned Leadership, the title of my recent book. Attuned leadership is both responsive to human needs and responsible in terms of ethical values.

An attuned leader recognises the plight of people and sets out to respond with solutions that are good for the commonwealth. In the case of business leaders, they need to demonstrate that capitalism is indeed good for the commonwealth and not just for the wealthy few.

The qualities of leadership may be intangible things of the spirit, yet no modern leader can afford to ignore the material wellbeing of the followership. In the past, leadership success was measured in military triumphs and symbols of glory.  Today a leader walks the same earth we do; naked aggression is frowned upon; and power is personalised in media images of politicians answering to their voters. Today a leader must seek to deliver jobs, services and benefits quickly or lose the race.

Predatory capitalism is out. It will be exposed, laid bare, by the very stakeholders that business needs as its friends. By treating its operations as inclusive of social needs – not separate from or opposed to the demands of communities – a business becomes a true citizen of democracy.

It is time, then, to call for a kind of Marshall Plan by businesses here in South Africa and in other parts of the world to commit themselves to social upliftment.  This is for their own sustainability but also because they owe it to their stakeholders to make a return on human investment. I cannot forespell in detail how this Marshall Plan would work but I can say that the mighty resources of the corporate world do harbour the potential to overcome poverty, raise educational standards, and provide broad-based opportunities for work and entrepreneurship.


In conclusion, it may surprise you to hear me take a leaf out of Lenin’s book What is to be done? Lenin argued that to concentrate on narrow material goals was “economism”. He wanted workers to break free of their self-interest and contribute to the greater good of all through revolutionary activities. I am not proposing a Russian style revolution! What I am saying is that Lenin was right about economism: there are things that matter more than our self-interest. But where I diverge is in that self-interest is one of the most important motivators of social action.

If properly understood and applied, the incentive to better oneself is the foundation for bettering one’s society. To transform individual action into the pursuit of the common good – a collective goal – is, as I see it, the purpose of free enterprise. That is what our African traditions teach, and that is what we have to teach the world:  Humanised capitalism.

To paraphrase and extend Stanley King’s observation: Democracy, including workplace democracy in the form of participative management, is threatened by the inertia of good people, by the selfishness of most people, and by the evil designs of a few people.

To which Harry A. Hopf would add: “Business is dependent upon action. It cannot go forward by hesitation. Those in executive positions must fortify themselves with facts and accept responsibility for decisions based upon them. Often greater risk is involved in postponement than in making a wrong decision.”

So let us be bold and decisive in

  • Fundamentally transforming our political economy and rendering it reflective of our population demographs where management and directorship are concerned.
  • Treating women fairly in terms of equitable employment, equal opportunity, equal pay for comparable jobs, no sexual harassment, and unconditional respect.
  • Thinking, planning and acting generationally, resisting the temptation to consume seed capital but investing it for future generation.
  • Cultivating and nourishing the entrepreneurial spirit, funding and promoting business ventures, free from the hamstrings of the politics of patronage and political largess.
  • Choosing meritocracy over deployment in selecting and placing our national talent for growth and development.

A crucial choice stares us in the face: inclusive capitalism or an eroding political economy with a ghastly end. Community or chaos, the choice is ours.

For the evils of racism, sexism, economic exclusion and unemployment to die, a new set of values must be born. Our economy must become more person-centred than property- and profit-centred – important as the latter may be. Our government must depend more on moral authority than on self-serving manipulative schemes.

As Martin Luther King Junior admonished: “In a real sense all life is interrelated.  The agony of the poor impoverishes the rich, the betterment of the poor enriches the rich. We are inevitably our brother’s keeper because we are our brother’s brother. Whatever affects one directly affects all indirectly.”