Controlling Wallmart

2011-05-24 00:00

DURING the past few weeks, I have wondered why the Competition Commission has been the body that is hearing arguments for and against the Walmart purchase of a stake in Massmart. After all, such a merger can hardly be accused of limiting competition. But a closer examination of the objectives of the Competition Act (No 89 of 1998) reveals that such mergers do fall within the ambit of the Competition Commission whether in the sphere of competition or not. In the preamble to the act it is recognised that "an efficient, competitive economic environment, balancing the interests of workers, owners and consumers and focussed on development will benefit all South Africans".

Among the objectives are the aim of achieving a "more effective and efficient economy", providing for "markets in which consumers have access to, and can freely select, the quality and variety of goods" and, most significantly, "regulating the transfer of ownership in keeping with the public interest".

What has been happening in recent weeks is that the Competition Commission is being called upon to arbitrate on the "public interest". This is a very solemn test of any body's credibility and wisdom. For the most part, public interest is what we want, with little account being taken of what others may want. Indeed, I suggest it is beyond human capacity to determine exactly what constitutes public interest and what does not. As is to be expected, the Competition Commission will be persuaded one way or the other by the arguments presented and, probably, by the particular status of those doing the presenting. Here the government itself has entered the fray through both its Department of Trade and Industry and its ally, Cosatu. Under such circumstances, I would not be especially confident if I were a Walmart negotiator.

While I have not followed the progress of the hearings that closely, I have not heard a great deal from or about consumers, nor from business about the very nature of a free-market economy. I was interested to hear evidence presented that suggested that Walmart has done more for communities in the United States than most other organisations by virtue of its success in controlling inflated pricing. American consumers have a great deal to be thankful for: the Walmart model has led competitiveness by ensuring, through its business practices and philosophies, that prices are pegged as low as possible. Other retailers have been forced to follow suit, thereby creating a highly competitive market for the benefit of consumers.

Personally, I do not have unconditional faith in the positive influence of the market. We suffered a debilitating recession as a result of the market being unable to control itself. This was followed by an important phase where collapse was prevented by public-sector intervention in many leading economies. This was the ultimate indignity, I suppose, for traditional economists. At the time one wondered whether this experience would not result in overregulation as government role in national economies assumed a new dimension. I don't think this has happened, generally, many governments being mature enough to accept that they have neither the capacity nor the inclination to fetter the private sector by assuming a controlling role.

But here we have been witnessing strong pleas for enforced constraints which, if finally acceded to, will interfere unconstructively with the normal working of the private sector and the market. It cannot be right that risk-taking shareholders should be regulated in terms of what goods they purchase and from whom. Nor is it right for the new investor to be told how many people should be employed. In fact, the proposed conditions went a great deal further: retrenched employees should be re-employed because there is a perception that the employer laid off staff in preparation for the merger.

I should not be surprised if Walmart walks away from this issue and takes its dollars to another developing economy. Even in Africa there are those countries that could race ahead of ours if we continue to show such blinkered discouragement. We must face reality, I believe. We need foreign direct investment, we need a more competitive business environment in which productivity is improving and we need lower prices for consumers. We will not achieve these by adopting inhibitive policies and strategies.

• Andrew Layman is the CEO of the Durban Chamber of Business.

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