by Dadewethu Fika
Before we continue to build upon some of the principles established in the first part, it is important that we revisit some of them briefly:
B-BBEE plays an insignificant part in the determination of the awards to be made;
Non-B-BBEE bidders are also able to score B-BBEE points through partnering up with historically disadvantaged persons;
There can never be any true equality in any society if its people were never treated fairly from the onset, and in order to correct this and make reparations (if you will), society now has to work in favour of such people, where it had previously worked against them.
Last time out, we were focused on the basics of the SCM legislation and how the government makes its awards to prospective suppliers, and so it is important that we look into the link this may have to do with economics, but more especially our country’s economy.
Demand and supply
According to Wikipedia, “Economics is the social science that studies how people interact with value; in particular, the production, distribution, and consumption of goods and services.” What should be evident from this is the point that a lot of people in any economy would ordinarily interact with value, through their roles of being suppliers (including producers) or consumers for any good or service, or this good or service would simply not be produced or supplied.
Some of the core tenets of economics revolve around the concepts of demand and supply, which drive and underline a lot of interactions in the marketplace:
Demand refers to the amount of any good or service that consumers are willing and able to buy at each possible price in that market. The demand for a good or service is not only based on the willingness to buy it as a result of the consumer’s wants or needs, but it is also dependent on the consumer’s ability to pay the price being offered by the supplier. This means that if there is willingness but no ability, or there is ability but no willingness, there will be no demand for that good/service;
Similarly, supply refers to the amount of any good/service that suppliers are willing and able to supply at each possible price in that market. The supply of a good/service is not only based on the willingness to supply it to meet the consumer’s wants/needs, but it is also dependent on the supplier’s ability to supply said good/service. If there is willingness but no ability, or there is the ability and no willingness, there will be no supply of that good/service.
The point which should become apparent is that without the resources/means to produce and/or supply goods and services, some people (including consumers) will never be suppliers. This is inherently problematic because this means that meritocracy – the idea that people can work and achieve a greater/better social standing in the economy – in the marketplace, where suppliers and consumers meet, can never really exist because it is not only dependent on a prospective supplier’s own abilities to compete in the marketplace but is also hugely dependent on that supplier’s access to the resources and means.
There is a ceiling that is essentially placed on every (prospective) supplier, beyond which a supplier could never break through, no matter how much harder they exert themselves. Said differently, without the means to expand, there is a point in each supplier’s business at which the supplier will simply not grow bigger, irrespective of how many extra kilojoules of energy the supplier is able to add to their business. The effect of this is that unless:
consumer tastes evolve and change over time; and
no new suppliers enter the market with better or comparable products,
the status quo (in terms of positioning in the market and the share of the market a supplier) of current suppliers we have in the market, will continue into perpetuity for the foreseeable future. This means that their position is forever entrenched in an economy, unless and until something drastic happens. If the current interactions with value remain, then everyone’s position in an economy will at the macroeconomic, nation-wide level remain the same, whether they are producers, suppliers or consumers.
The question which should naturally follow then is how some people can be expected to compete in the supplier/producer spaces without the means to do so, especially where said people are willing to do so. And we would have to accept that in a South African context, some segments of the population will never become big-players – at least not for a few generations – because achieving exponential growth organically is really hard to do, unless people’s access to resources and means is expanded. For the purposes of this opinion, exponential growth is defined as a new producer entering a market as a small-player and then growing to be at least one of the major players in a freely competitive market.
Do we have any players of colour in our economy?
There are four main types of market systems which can possibly exist around the goods and services offered in an economy, namely:
Perfect Competition: because there are many buyers and sellers, it is difficult for anyone market player to have influence over the market price of goods or services; such a person will simply be replaced by the other players who will accept the current price. The products offered by the sellers are very similar, and each seller only controls a small part of the market. Due to the lack of influence by any one party, there are believed to be no barriers to entry – factors that prevent new firms from competing equally with an existing firm, be they legal or technological – for prospective suppliers seeking to enter this market;
Monopoly: unlike in a perfectly competitive market, a monopoly only has one supplier, and there are no realistic alternatives to the product offered (i.e. the product has no direct competition), because there are many barriers to entry for new suppliers. This would allow the supplier to set whatever price he sees fit, limited to the consumers’ willingness and/or ability to accept this price;
Oligopoly: whilst this system is similar to monopolies, it is different in that there are only a handful of suppliers which exist. As these firms would not have the same pricing power as a monopoly, it is possible for them to collude and agree on the prices to be offered to the market, the technological advances to be introduced to the market, etc.; and
Monopolistic Competition: these markets are a combination of perfect competition and monopolies, in that there are many competitors in the market (meaning it is relatively easy to enter such markets), but whilst each offers a product that could be considered a close substitute for another, each is sufficiently differentiated to set it apart from those of competitors. As such, these suppliers have greater pricing power than those in the perfect competition space.
Now that we know what types of markets can exist around the goods and services supplied and consumed within our economy, it is important that we consider the demographics of the various market players, in the sense of wondering who the producers/suppliers are versus who the consumers are. Think of your favourite locally produced, “Proudly South African” products: from whom do they come? Are any of these suppliers people of colour or owned by people of colour? Who are the producers/suppliers of the public infrastructure that is often said to be so necessary to encourage foreign direct investment (FDI) in our economy? Who are the beneficiaries of said FDI within our economy?
Given the history of our country and the fact that a perfect competition is considered idealistic and is unlikely to exist in its entirety (i.e. there would always be some elements missing), that narrows – South Africa’s – possible market system options to monopolistic competitions, oligopolies or monopolies. From what we have learnt above, we know that there would be some level of barriers to entry which exist in each possible market, before we even get to the actual means and resources required by each prospective supplier looking to enter such markets and possibly compete. Again, how many producers/suppliers of colour do we have in these market spaces? Do we have any?
Problem statement
An unintended consequence of the lack of government regulation by the democratic government is that by actively not developing and pushing through people of colour to inhabit the producer/supplier roles in the various marketplaces, the government and its citizens (or the citizens and their government, if you will) have helped to entrench the current market structures in our economy dating back to before democracy and assure their continued existence and sustenance for the foreseeable future.
What has exacerbated the problem – is society aware that this is a problem? – and made this mistake more egregious has to be considered the fact that the current means and resources for a number of these producers/suppliers have to be that they are ill-gotten and date back to pre-democracy times, some with the help of the government of the time, and some with the help of the government of these times through its adopting and implementing archaic policies and practices, which had always excluded the greater part of South Africa’s economic population.
So, our economy evolved from one where some current producers and suppliers acquired their means and resources unfairly (and have since fortified and built on them) to one in which every prospective supplier now competes fairly for these resources, which are known to be unquestionably scarce. Again, part of the core issue was the acceptance by South Africa’s people of being written into “equality” and being recognised as having “equal rights”, without seeking for previous wrongs to be made right, which would be what was fair.
What about the National Treasury and its annual budget in the trillions, which roughly outlines the procurement needs for government at its various levels of operation for a given year? Where do these monies go and to whom in terms of the greater economic perspective? What role does the Treasury play as the biggest consumer?
To be continued…
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