Just over 10 years ago the CEOs of the big three US car companies — Chrysler, Ford and General Motors — headed to Washington to seek financial assistance from the US government. As private-sector titans that had dominated an industry as employers, innovators and taxpayers, their aim was to sell the idea that letting them fail would have long-term effects on the US economy that would take a generation to fix.
Unfortunately, the CEOs opted to fly in to Washington using their company jets which, given that they were there to plead poverty, infuriated politicians and the public. The journey to Washington was a result of a combination of bad business decisions, increased global competition and outdated operational structures. But luckily for the big three their 2008 trip coincided with the height of the financial crisis and the transition from the Bush to the Obama administration. As a consequence, the carmakers could argue that not all of their problems were their own doing as they were involved in the capital markets and, like any other corporate, were impacted by the financial crisis.
In response, the Bush administration stepped in with billions in assistance as a parting “gift” to the American people. The incoming Obama administration, with one eye on the need to avoid an employment crisis at the beginning of its term, escalated to funding assistance through the troubled asset relief programme.
Governments across the world maintain strategic and occasionally tense relations with big business. Regulating them comes hand in hand with the need to keep them happy as employers and taxpayers. However, funding them is not part of the deal. Yet the sheer size of the big three elevated them above normal businesses that could be allowed to fail with minimal disruption to the larger economy.
While politicians and the public may be hostile to the idea of bailing out businesses of this nature, they also have to appreciate the consequences of failing to intervene when they can. The relief programme forced the carmakers to take difficult decisions aimed at ensuring their long-term viability. Barack Obama’s appointment of Steve Rattner to crack the whip enabled the government to enforce reforms that kept the carmakers alive.
In the case of SA, Eskom represents our version of this dilemma. As an employer of 47,000 and supplier of 95% of our electricity consumption, its importance to the economy is unmatched by any other enterprise. But with its balance sheet overwhelmed with debt and its operations crippled by inefficiencies, the risk it may collapse is looming large. Eskom is as strategic a state asset as you can ever find. In other words, its continued viability is a matter that affects all of us. The Eskom issues are well-known — historic maintenance backlogs, declining sales, escalating costs and poor credit ratings.
The ANC government’s historic insistence on appointing individuals whose primary qualification is affiliation rather than competence to run state enterprises has created a management and governance crisis across all state entities. Consequently, the Ramaphosa administration’s commitment to cleaning up state enterprises needs to amount to more than just shuffling the executive delinquents off the corporate coil. It has to appreciate that central to the management crisis was the tendency to subvert economic fundamentals to placate political stakeholders.
Bloated workforces, skills misalignments and institutional incapacity are the net results of these concessions. If the state is to continue bailing out these entities, the new boards need to have the autonomy to crack the whip and prioritise economic fundamentals over political capital. Failure to do this could mean the Cyril Ramaphosa ticket cruises to an election victory only to find there’s nothing left to govern afterwards.
• Sithole (@coruscakhaya) is a chartered accountant, academic and activist.
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