Faculty of Commerce at Rhodes University, Grahamstown
7 April 2006
Professor Gerwel,
Dr Woods,
Deans and Members of Faculty of Rhodes University,
Parents,
Friends,
Graduating students
Many of the deepest and most profound challenges in the life of a Finance
Minister arise from the inter-tanglement of law and economics. Fundamentally,
the annual budget is the Executiveâs statement of how it plans to give
practical meaning social and economic content to the duties and obligations
imposed on it by Parliament, and embodied in law.
I imagine that in the lives and careers of todayâs graduates, the interface
between commerce and the law will also figure prominently at times, although I
hope not too often. If you go into business, it is the law that provides a
framework for the institutional form of your enterprise, provides security of
ownership of your property and certainty to the contracts and transactions that
make up your business activities. If you go into public service, the law will
provide the intrinsic motive, organisational structure and practical means
through which you will act, as a teacher, an administrator, an advisor, even as
a politician.
If you marry, then that happy circumstance will be governed by legal and
economic necessities that you had best study carefully in advance. And if you
have the good fortune to find yourself in receipt of an income, regular or
irregular, you will find there is an inconvenient interference of the law in
your financial affairs that the South African Revenue Service administers with
ever increasing competence and professionalism.
Both the law, and the economics of everyday life, are extraordinarily
complex, sometimes surprising, sometimes frustrating, always exacting. I know
that the very best efforts of your teachers and the diligence with which you
have applied yourselves, body, mind and spirit, to the acquisition of knowledge
during your time at University, are just the beginning of the great learning
adventure in these subjects that accompanies life and living.
Some of you, or your long-suffering parents, may already have experienced
misadventure of a legal or economic kind. I hope it is possible to take from
the experience what is useful and helpful, with the humility to adopt a more
moderate approach to celebrating life, going forward.
This is not, incidentally a problem only of the modern age. In 1954 a Senate
Committee enquired into âthe orientation of first year studentsâ. It was
reported that âThere is great indifference to academic work amongst the rank
and file of students⦠If you study regularly you are thought rather odd.â And
so we can celebrate today the outstanding achievements of those who perhaps
chose to be a little odd, while we also congratulate those who have succeeded
in the academic race despite the alternative distractions of student life. More
important perhaps, are the larger lessons of social and intellectual curiosity,
comradeship and community, which are the hallmark of this wonderful University
and the City of Grahamstown.
I would like to leave a few thoughts with you today on the choices we all
face, in so many different ways in private and public life, that depend not so
much on the law or economic calculus as on our values and moral beliefs. It is
surely true to say that for all the certainty and refinement of options that
the law provides, and for all the analytical rigour about costs and benefits
that economic rationality offers, it is the way we think about what is right
and what is good that is far the most important determinant of the actual
choices and decisions and judgements that we make.
I have in mind, for example, the challenge of progressive realisation of
social and economic rights a concept which occupies a special place in the
South African Constitution and underpins large parts of our public finances.
The law provides that the state contributes to housing for the poor, basic
residential and municipal services, access to clinics and schools. But how we
allocate resources between these and other priorities, how we manage projects,
how we monitor service delivery, how we actually go about the daily tasks of
public administration, is intrinsically about values.
I have in mind also the intricate interplay between statutory protection of
individual and group rights and the negotiated or competitive evolution of
social and economic institutions. We have recently heard the courts rule on the
obligation of the city of Johannesburg to provide alternative accommodation to
people evicted from illegally occupied or hazardous buildings. We have also
recently seen the tragic consequences of a failure to maintain basic fire
protection standards in crowded residential structures. How do we make sense of
the courtâs judgement, in the context of very real risks associated with
dangerous living conditions? One possibility is that officials, faced with the
judgeâs rejection of the cityâs efforts and the impossibility of fully
providing alternative accommodation when the waiting lists are already
unmanageably long, will retreat further from the inner-city housing problem and
divert resources to other purposes. Or perhaps a way will be found to match the
building renewal programme with workable residential relief services. The
important point I want to make is that it is not the court judgement that
solves the problem. Whether a solution is found or not, depends on the
imagination, resources, shared expertise and above all the vision and values of
the officials and others involved in the housing process.
The courts can contribute very little to this, and it is not difficult to
describe circumstances or find historical examples of progressive court rulings
that have been counterproductive, in practice, because the institutional
capacity required to give effect to the law has been absent. And the
institutional capacity that is most critical, is rather abstract, rooted in
shared moral values, and canât be hired from a labour broker.
These are weighty themes, proper subjects of dense scholarship and lengthy
discourses. Although the underlying philosophy may be rather complex, the world
throws up puzzles of this kind all the time, and we have to be prepared.
Headed by our Constitution, but set out also in an extraordinary range of
legislative and policy reforms over the past decade or so, and embedded in new
institutions with specific mandates to address social and human rights,
protection and empowerment of particular groups or identified economic needs
and social development challenges we have constructed an impressive array of
progressive state programmes backed by the law, fiscal resources and carefully
designed organisational arrangements. Yet, I think we all share unease, a sense
that what we have achieved is not enough, an impatience that poverty and
unemployment persist, a desire to move ahead more rapidly.
What holds us back?
There are many ways of answering this and of course an important part of the
answer is to understand that we can aspire to greater social progress, but we
canât be entirely confident about how.
Isnât that one of the glorious paradoxes of being human? There is no limit
to what we can achieve, but there is a bit of mystery in everything we
undertake. We can make 438 runs in 50 overs, but how we get there is way beyond
anybodyâs understanding.
There is something else about the sports-field analogy that is helpful to
understand. The fitness training, the team exercises, the skills programmes,
may well pay dividends, may yield calculable benefits, but there are no
guarantees about the outcome of the next match or whether we will win or
lose.
We do know that a team with a common purpose, shared values, a collective will
to work together, is more likely to succeed than a divided house, a broken
partnership.
Economic development, building a business, developing a career, raising a
family these are human endeavours of infinite complexity about which our
knowledge is incomplete. Success may be quick, it may be slow. What we do now,
may deliver rapid returns, or may emerge much later. Education is a social
investment that pays not just interest, not just compound interest, but a
cumulative compound return over many generations. But in the national accounts
it is a collective consumption item. The hours you have spent at your books may
bring rapid business opportunities, may mature gradually over your career, may
even yield their richest reward in the way you spend retirement years with your
grandchildren.
We find ourselves somewhere between the certainty and relentlessness of the
law, and the risk-reward trade-off of the business entrepreneur. Social
progress is not governed by immutable laws, but nor is it a lottery. The real
lesson here is about learning â learning from our own past, learning from other
peopleâs experience, learning from the evidence around us. Perhaps the
astonishing thing is that it can take so long for the evidence to be exposed
and to be understood.
Ideology, familiar practice, unexamined beliefs all play a part in holding back
progress.
We have known for a long time that far too many policies in our contractual
savings industry are surrendered, at excessive cost to financially vulnerable
consumers. We have known for a long time that the administration and
transaction costs in our unusually well-developed financial service industry
are comparatively high. But somehow the disease has been left unattended; a
kind of social complacency has persisted for decades. But what is familiar, and
legal, and commercially successful, may nonetheless be a social and economic
outrage.
We have to be willing to examine the evidence, and turn it around and dig in
dark corners, and overturn long-established reputations if necessary. The
simple lesson from this sorry saga is that what is familiar, and
well-established, and respectable, may nonetheless be unfair. Be alert, and
have the courage to question what may be familiar, but is nonetheless
unsound.
There is of course nothing new in the discovery that many tens of thousands
of otherwise fine people have been lulled into complacency because unseemly
practices have become familiar and established. Unfair commercial practices in
part reflect inadequate regulatory arrangements. We can proceed to put in place
remedies, but we should be cautious about how we apportion blame and there are
distinct limits to the scope for extending corrective measures back in
time.
Modern-day business consultants are much taken with the language of risk
management, and in the usual toolbox nomenclature there is an unedifying
category called âregulatory riskâ. Frantic actuarial minds have perhaps been
exercised by alarming regulatory risk matrix calculations in some parts of our
financial services sector over the last year or so, but there is clearly a need
for a level of discourse beyond this clutter of opportunistic classifying and
computing.
Where the pursuit of commercial gain is elaborated in business practices
that heighten the âriskâ of regulatory intervention to protect the ordinary
interests of customers and consumers, then something fundamental is at fault.
One view might be that short-term gains have crowded out more prudent long-term
perspectives. Another is that there is a failure of moral leadership in our
business sector.
The character of business leadership and its articulation in codified
standards of corporate governance is of course an issue of global concern these
days. We have seen several free-wheeling governance failures of major
proportions, both internationally and in our own country, descending into theft
and fraud of mind-numbing dimensions. The scale of this kind of plunder may be
unquantified, but its character is unambiguous.
Much more insidious is the kind of corporate fraud that works within or
nearly within sometimes carefully exploiting formal rules and procedures of
governance. There may be failures of oversight and fiduciary negligence on the
part of directors that create opportunities for unscrupulous managers; in
complex financial structures and overloaded board agendas there is seldom
enough time to cover every possible loophole adequately. But the complexity and
the information overload is frequently part of the problem. There is a very
simple lesson from many of the fraud and business failure cases we have seen
over the past decade or two, which is that, over-elaborate information systems
frequently designed to manage all manner of risks and contingencies have the
unintended effect of weakening the integrity of corporate decision-making. Keep
things simple, make sure you understand. We would have far less fraud and far
better governance systems if that basic idea were more often applied.
Most instances of corporate fraud, unsound or unfair business practices, or
corrupt acquisition of wealth, can be simplified to fairly straightforward
moral issues. Elaborate business structures, even forms of compliance with
modern risk management and corporate governance principles, can have the effect
of masking or distorting the underlying moral judgements. All too easily,
intelligent and well-intentioned people, allow themselves to slip into
unacceptable behaviour because it is dressed up in a respectable cover. So my
cautionary concluding word to todayâs graduates is: take responsibility, moral
responsibility, not just for what you do, but most importantly for how you
respond to the opportunities that come your way. Donât be misled by
appearances, be clear that the substance of your conduct is above reproach.
Let me return, Chancellor, Vice-Chancellor, staff and students, parents and
friends, to the Constitution that is the well-spring of our law and the values
underpinning our public life. Our Constitution commits us to:
* Heal the divisions of the past and establish a society based on democratic
values, social justice and fundamental human rights;
* Lay the foundations for a democratic and open society in which government is
based on the will of the people and every citizen is protected by law;
* Improve the quality of life of all citizens and free the potential of each
person; and
* Build a united and democratic South Africa able to take its rightful place as
a sovereign state in the family of nations.
Part of the burden of these obligations, part of the joy of the freedoms we
have won, is the responsibility of moral judgement, the duties of fairness and
honesty, in public and private affairs.
Issued by: Ministry of Finance
7 April 2006
