After listening to radio interview on Talk Radio 702, where the guest effectively suggested that big business is under no obligation to assist small business implement an idea, if the small business cannot implement the idea on their own. This was in response to a caller that said small business fears big business stealing their ideas.
My small head could not wrap itself around this idea, until I realise that the discourse was created by , my entrepreneurial hat debating with my economics one. Imaginable how this debate can be further complicated if it were to become a political one with racial undertones that characterise both sectors. It is however my intention to limit this debate to an economics one.
1. Rent seeking nature of Broad-Based Black Economic Empowerment
A simple definition of Rent-seeking is the use of resources within an organisation to grow existing wealth instead of creating new one. BBBEE compliance has forced big business to adapt their business practices and has done little to advance small business development.
Scenario 1: It is within the codes of good practice including the newly proposed amendments that two big business can complete an Enterprise Development (ED) project. A big pharmaceutical business can sponsor the training of nurses in a major private health group and attain BBBEE scoring. Thus the pharmaceutical business would adapt their marketing spent, which they would have used to keep the private health group happy as ED spent. No real development in the spirit of the codes is realised by such a transaction.
Scenario 2: The other trend in ED is to turn line functions into ownership schemes. It has become for instance a natural progression that companies with fleet or logistic units to create Owner-Driver schemes and make their ED scoring. The vice with such programmes is the existence of the career transporter that is now being out foxed out of the market by this creation of an economy of scale created by big business. The logistic budget still winds up as salaries and career transport entrepreneur is not growing any more. The spirit of the codes was that the career transport entrepreneur could approach big business to sponsor the buying of a truck for example and they would seek out new opportunities to grow outside that relationship with the big business doing the sponsoring.
Thus at an economic development level BBBEE is not well poised to drive South African economic growth and development. This effectively abdicates big business from a capitalistic responsibility to support economic growth.
2. Industrial Development
Economic diversification is the next frontier in African development. We all agree that we cannot have economies that are anchored on natural resources and we need to branch into new spaces and industries. The biggest boom in my lifetime would still be the information age of the late 70's and 80's and maybe the .com bubble of the 90's. That revolution was anchored on the ability for small business to create new technology with big business.
Scenario 3: Bill Gates was able to sit with IBM as a small business and convince the industrial giant of the time to use his Software. The growth of Microsoft was a facilitation of a healthy relationship between the two sectors. Imagine if IBM said don't worry we will take your idea and developed our own.
This would have stifled innovation, look where both companies are today and how home computing has been shaped by incremental upgrades that followed that IBM meeting. It therefore makes it unfortunate that in South Africa big business can steal ideas from small business and such a genuine fear can be dismissed with a rhetoric from the industrial revolution. Moreover after we have come to appreciate the power of knowledge sharing with the advent of Globalisation.
Scenario 4: Construction sector is driven by a grading system that ensures big businesses complete big tasks and small businesses complete smaller ones. The idea there, is that smaller entities would be subcontracted to big ones and that they would gradually grow up the ranks and the industry would grow. Given the success of 2010 for the sector it would be easy to assume that companies that have climbed up the ladder have increased. But that's not the case, big businesses has kept the development of the sector in check such that only a few companies can sit and form cartels that decide the extend at which the sector can profit.
Do we have a need to diversify the economy and create new Jobs? Yes we do and with that need, big business needs to become a role player.
3. Knowledge Economy
In a knowledge economy, the product produced is an educated population especially in technical skills to become the driving force of the economy.
Scenario 5: Our production of Java skilled people is catching up to demand all be it slowly but we are producing young entrepreneurs capable of producing the next app to revolutionise the communication space. Effectively if a big business was to set-up a testing facility for this young people to test their ideas it would be against the statement above. But if our government meets its obligation to produce an educated public, why would it be a far fetched idea that big business should drive economic gain as employers or business development agents.
The public is quick to place this demand on State Owned Enterprises (SOE) and it unthinkable to expect the same from the private sector. Supplier development colleges in Transnet are to be supplemented by other programmes by the private sector.
Big business have created opportunities for small ones in South Africa before, SAB kick start as an example, but I can't help but wonder what would be the greater extended of growth if they all played ball.
