Unfettered pursuit of profit will distort business setting

What you need to know:

  • No doubt, and credit to the management and marketers of Safaricom, it has grown immensely since those early days, including innovating M-Pesa, which contributes to its dominant status in the telecom industry and runs the risk of determining and fixing tariffs and prices.

  • Just like in the political arena, too much power and dominance by a few companies is dangerous and can cause more problems than we think.

Many years ago, a thoughtful and reflective friend of mine told me how, after completing his dream house in one of the leafy suburbs of Nairobi, he found himself making improvements every year. One year, it would be putting in a hot tub, the next was installing wall-to-wall carpeting, then it was improving the kitchen.

Then after a day of hustling with the contractor, his wife asked him why they never seemed to be satisfied with what they had and always wanted more. Now, my friend is a good Christian man and a church elder, so the couple prayed on this issue before sleeping. The next day, they decided that God surely would be frowning for wanting more and more despite His abundant blessings in them. He told me that at that point a sense of relief, grace and peace swept through them.

I remember this story as I have been reflecting on the lay-offs and down-sizing in the private sector over the last year.

We are told that our economy is growing at between 5-6 per cent, which is translating into job losses rather than job creation, especially in the banking sector.

RATE CAP

The banks are quick to blame declining profits on the recent interest rate cap that was intended to make loans more affordable and accessible. But the banks say there has not been a significant increase in people taking loans, so their profits are falling. Note that the banks are not making losses, only reducing their once massive profits, making the downsizing and lay-offs almost seem like “whitemail” to return us to the status quo of unfettered interest rates.

But, like my friend who got his epiphany from prayer, the banks – and many of us actually – need their own moments of reflection.

For the last decade or so, the banking sector has been swimming in it, with 2015 profits reported at Sh134 billion. Year after year, banks have been reporting increasing profits – sometimes dubiously as we learned from Chase Bank and Imperial Bank – but the main beneficiaries have been the shareholders and executives whose salaries and bonuses have shot up, while workers’ pay remained constant.

These boom times brought massive wealth and bonuses to shareholders and executives, gobbling up most of the profits, while ordinary staff and customers have been left holding the bag, so to speak. Yet when there is a downward shift, it is the customers who face increased transaction costs and ordinary staff who are laid off who take the hit.

Now, remember that the banks are not making losses: they are simply reducing their profits. After year-on-year growth, is there really a difference in the pockets (and lifestyles) of shareholders if profits drop from Sh4 billion to Sh2 billion? Is it really necessary to lay off workers? Is this not just naked unabridged greed?

SAME SHAREHOLDERS

Incidentally, the laying off of staff and charging customers increased transaction costs means that the beneficiaries are again the same shareholders and executives. They win in boom and rough times alike.

I am not saying that profits are bad, or that the market economy is wrong. But I do think that unfettered markets, or market fundamentalism, that do not account for all the stakeholders – inclusive of workers, staff and customers – are dangerous and lead to increased inequality, which is a breeding ground for instability.

They also lead to monopolies or duopolies, which are too powerful and can price fix, at the expense of the same market dynamics.

Regulating or even forcing mega-companies to split is not about penalising success. In fact, none of these mega-companies, such as Safaricom, would have succeeded without significant State support, especially at their start. Remember Mobitelea Ventures, the shell company that was Safaricom’s secret shareholder when it was bought by Vodafone?

No doubt, and credit to the management and marketers of Safaricom, it has grown immensely since those early days, including innovating M-Pesa, which contributes to its dominant status in the telecom industry and runs the risk of determining and fixing tariffs and prices.

Just like in the political arena, too much power and dominance by a few companies is dangerous and can cause more problems than we think.