The numbers are far worse!
The Competition Act and equitable distribution. Criminalization the answer?
The incessant calls for the nationalization of strategically placed corporations, industries and/or sectors is something which albeit, can be argued to be restricted to a ‘few’ radical youth; or taking the view, amongst other commentators, whom suggest that, the numbers are not something to be gleaned at with passivity. The consequences of such calls especially amongst the most disenfranchised, are drastic and far reaching. “The unemployment rate among youth [aged 15 to 34] increased from 32.7% to 36.1% between 2008 and 2014”. Regardless of the numbers, South Africa is not new to the debate and, it can be suggested to have de jure resolved the matter on the nationalization question. The position as it stands can be summarized as following;
“During that period the ANC espoused a policy of nationalization of industry as a means of controlling and disciplining the South African private sector. This approach changed as it became apparent that such a strategy was no longer possible or desirable. Instead, anti-trust legislation came to replace nationalization as the means of regulating and disciplining business.”
The legislation which was adopted by the Republic being the Competition Act 89 of 1998 (the Act). The Act, in response to the legitimate calls for nationalization, postulates certain purposes, which can be argued to be compatible with certain aspects of nationalization of industry. The section which houses these purposes can be found in Section 2 entitled “Purposes of Act” the subsections in point reading:
“c) to promote employment and advance the social and economic welfare of South Africans…
e) to ensure that small and medium-sized enterprises have equitable opportunity to participate in the economy; and
f) to promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons.”
The purposes of the Act, it is suggested, do not go to the route of the problem which nationalization in the South African context – would have sought to tackle and provide some sort of redress or disciplining the private sector as articulated by Mr. Lewis. The redress which would be addressed, would be those of which the Act identifies and tries to use the Act to resolve – mainly the aforementioned subsections. Although nationalization is suggested to have been a more equitable manner of redress in a country with our peculiar history – the subject will feature only to the extent in which the suggestion can be understood. The Constitution of South Africa, which predated the enactment of the Competition Act, and significantly the latter gains its force, and is bound by the former. The main reason being that the Constitution holds the mantle of supreme law of the nation. In the Preamble of the aforementioned, the following is said about the history of the country:
“We, the people of South Africa, Recognise the injustices of our past; Honour those who suffered for justice and freedom in our land; We therefore, through our freely elected representatives, adopt this Constitution as the supreme law of the Republic so as to - Heal the divisions of the past and establish a society based on democratic values, social justice and fundamental human rights…Improve the quality of life of all citizens and free the potential of each person.”
The Constitutional Court proclaimed of the purpose of the Constitution of the Republic in the following manner,
“What is perfectly clear from these provisions of the Constitution and the tenor and spirit of the Constitution viewed historically and teleologically, is that the Constitution is not simply some kind of statutory codification of an acceptable or legitimate past. It retains from the past only what is defensible and represents a radical and decisive break from that part of the past which is unacceptable. It constitutes a decisive break from a culture of Apartheid and racism to a constitutionally protected culture of openness and democracy and universal human rights for South Africans of all ages, classes and colours. There is a stark and dramatic contrast between the past in which South Africans were trapped and the future on which the Constitution is premised. The past was pervaded by inequality, authoritarianism and repression. The aspiration of the future is based on what is “justifiable in an open and democratic society based on freedom and equality”. It is premised on a legal culture of accountability and transparency. The relevant provisions of the Constitution must therefore be interpreted so as to give effect to the purposes sought to be advanced by their enactment.”
What is apparent is that the Constitution and the Act aspire to the same goals – with a mindful and critical understanding of the history of the country. With the aforementioned in mind the economic ‘radical and decisive break’ which must be pursued by government and the society as a whole, as stated above was supposed to have been addressed through the Act. The following essay will suggest that, the Act - as an answer to the initial; nationalization policy, which was to be followed by the African National Congress - does not make the economic ‘radical and decisive’ break with the past as envisaged by the Constitution, and to a certain degree the Act. Moreover, it is suggested that the current measures cannot and do not adequately provide for a mechanism for which the initial nationalization policy of the ANC would have been able to provide for. Mainly, a more forceful and equitable spread of the wealth and industry created through a vicious period of injustice, aimed at benefiting a stark minority of a nation.
The economic sphere of the South African populace can be argued to have remained constant, throughout the post-Apartheid era. This unnerving factual matrix is said to stem from a history in which, “the government increasingly repressed the majority of its citizens, South Africa nevertheless saw a steady growth in its economy as foreign investors returned to the country, eager for the astounding profits that repression earned.” The wealth of the country remains concentrated in the hands of the people whom benefited from the repressive pre-1994 South African government – mainly ‘white’ South Africans or corporations in all their forms owned by the aforementioned group including international multi-corporations.
With figures, such as, “White South Africans held 41% of total assets, with 27% belonging to black South Africans, 5% to coloureds and 4% to Indians.” Although it must be recognized that some change has taken route – such change remains trivial. It is thus a reasonable assumption that, in the main, the Act, and the Constitution seek to address such numbers and especially in the economic field. A field which most people of colour in South Africa could not operate in fairly – because of the racist outlook the former government had on the, desirability and ability of ‘blacks’ to only operate in employment of the physical persuasion. This in effect restricted the majority of the country from entering the formal economic sphere – which is now, as stated above regulated by the Act and not the initial would be nationalization policy. Where the nationalization debate has a bearing in the current analysis is where it concerns, sectors/industry which was built up by the pre-democratic South African state, or those which gained their good name/reputation/wealth and the list is not meant to be exhaustive – all of the aforementioned entities owe their existence and current place in the South African market – however wide the net of the market definition is used – on the negation of the right to compete fairly from the majority of the populace of South Africa from the colonialization era through to the Apartheid regime.
Through nationalization it is suggested that, industrial activities would be directed towards the goal of public service rather than the current status quo of profit maximization – which is generally not concerned with the well-being of the nation, but finds solace in the amount of money which can be made therefrom. Moreover, it is suggested that at times, private ownership results in monopoly rather than competition. In South Africa, such a tendency can only have one outcome – which has been previously mentioned as a non-transformed economy and a complete betrayal to the vision of the Constitutional Court. What can be ascertained by the previous argument is that, the decision not nationalize in South Africa, could possibly lead to a less competitive economy – dominated by the ‘old guard’ and leaving the previously disadvantaged people with little hope of countering the prevailing status quo. The main reason for this being, the manner in which the Act operates. The Act did not do anything with the economic field when it was enacted – all it does is seek to achieve certain purposes – and focuses on sanction for future harm and does nothing to redress the past harms. Economic harm which continues to plague the South African country to this very day. Such harm encompasses the fact that the economy remains unchanged and it cannot be changed by an Act which only focuses on future wrongs. These harms to a certain extent, more so than what the current Act seeks to do - would have been addressed had the nationalization project been continued with and made into policy. As the following passage suggests, “under full nationalisation, at least in large industries like mining and railways, there are possibilities of better results than any other plan can offer.”
It is thus, not surprising that it is suggested that, “in matters of antitrust, protection of the weak from the powerful is a refrain most loudly heard in connection with the asserted needs of developing countries.”The weak in the South African context being all of those who were previously not allowed to engage in the formal economy to any dignified manner, which is the – arena which is sought to be regulated by the Act. As aforementioned, what nationalization could allow is – suggested to be a faster and more equitable manner of placing – at least in name – the sectors/entities which as aforementioned gained their existence to the restriction on entrance to the formal sector of the majority of the South African populace to any meaningful manner. Granted, such a wide definition of entities/sectors liable to attach nationalization is far reaching – it must be kept in mind that the Constitutional framework is premised on the acknowledgment of past wrongs and transforming the society with the document representing the aspirations. Moreover, the blatant disregard for human dignity of the black people of the country by the past governments – is enough justification for the need of such a wide definitional net. In any event there are many ways of implementing and interpreting the nationalization policy and nothing turns on such for the purposes of the current paper. The understanding of nationalization for current purposes being, the transfer of property from foreign companies, all mineral related companies, previously wholly owned state created companies (no longer owned by the state), banks, and strategically placed entities which owe their creation and continued existence to an overwhelming degree on - the discriminatory and racist laws of the past. What is suggested however, is that nationalization would bring more capital to the Treasury of the country/previously disadvantaged/indigenous people than the tax revenue which continued privatization and wealth concentration – notwithstanding the dubious and real dangers corruption poses to such a project. Such an outcome, is suggested to be a more equitable outcome rather than the continued concentration of wealth in the hands of the previously advantaged. The nationalization of all mineral resources, which are said to stand at 90% of all known platinum, 80% manganese, 73% chrome, 45% vanadium, and 41% gold are found underneath the soil of the South African nation - would thus generate the South African State an immense amount of wealth, which could be used to tackle the ills which the country have inherited from the past. Something which, the Act however, worthy its goals are, cannot do.
With that in mind and the realization that the state chose not to pursue the nationalization project and in its place – enacted and is bound at least until the government of the day with the requisite quorum decides to the contrary, not to mention the mandatory judicial acquiescence - by the Act. Thus, the aims and purposes of the Act as aforementioned and those which are added on by the Constitution become even more important. And the contravention of such a critical statute, with its commendable goals – should be visited with the harshest possible sanction. The essay will suggest that the current sanctions offered by the Act are wholly inadequate – with respect to the history of the country and the proposed goals set by the Act, which is further strengthened by the interpretation of the purpose and objects of the Constitution previously mentioned. The essay will suggest that contraventions of the Act must be remedied by criminal sanction – and in particular heavy jail sentences. This will be done through an analysis of cartel activity and the consequences thereof to the economy, the visions of the Act and the Constitution. Suggesting that the, position in which the entities which are aforementioned are placed, by virtue of the past – is one of privilege and requires that, they adhere to the spirit of the Act and ultimately the Constitution in addressing the goals of both. Furthermore, it has to be recognized that, “Cartel harm does not provide good basis for criminalization and it is argued that its proper basis should be the individual cartelist’s intention to subvert the competitive process”, what is suggested is that in the South African experience there has to a reference to public policy as a means for the justification of criminal sanction.
It has been suggested that there are two theories to the justification for criminal sanction mainly: jus Deserts and Deterrence theories. The former, posits, “Punishment ought to be justified not by reference to its ability to prevent future crime but rather because man is responsible for his actions and must therefore receive what he deserves when he has made what society deems are wrong choices”. The later maintains, “Deterrence theory finds its roots in the classic utilitarian argument that suffering is a pain that should be avoided and that, as a result, punishment, itself a form of suffering, could not be justified unless a specific social benefit or utility can be derived from its imposition” whichever theory one subscribes to, it is apparent that both theories have in common a public policy consideration. By public policy – what is meant is good morals/public interest. It is suggested that the public policy in play in the particular instance, are those aforementioned encompassing the purpose of the Act and the overarching constitutionally imposed mandate. This is to a certain degree reinforced by the suggestion that the Act does not go as far as any conceivable nationalization policy, which would not in itself take away the liberty of the actors involved, the loss would be the property being taken – for the greater societal good. And although, more sense to the justification of imposing criminal sanction on economic actors can be found in the jus Deserts theory. The theory which, as its axiom, proposes that people should attach liability for their actions when such actions are deemed to have been wrong decisions by society. It is suggested that an acceptance of the theory strengthened by the fact that while it is trite in law that Corporations are legal entities in and of themselves – with a shift towards an award of more natural persons rights – those behind them must attract the penalties of abusing the rights attained by operating in the economic field.
Cartel Practices are an example of times when corporations, can and are deemed to have contravened the Act – and represent a time where drastic action needs to be taken with regard to the perpetrators. The justification being as aforementioned based on the precarious past of the Republic and the acknowledgment by the Constitutional Court, that there has to be redress. Through an analysis of one of the latest and recent cases, an attempt will be made to demonstrate - how the behavior involved in cartel practices, and how they blatantly abuse their positions in the market and disregard both the Constitution and the Act – a conclusion must be made that such conduct should attach criminal sanction. The main suggestion being that the fact that cartel conduct enables a reduction in consumer choices and of greater importance – the impediment such conduct poses to business innovation/ creation – which as stated above forms an integral part of the purposes of the Act. Such behavior cannot be left to the award of punitive fines alone.
The restriction of practices which will attract liability under s 4 of the Act are in part labeled by the Competition Appeal Court as, “the most serious legislative prohibitions against a defendant” which are per se prohibitions. It has been suggested that an application of the per se rule, “can be invoked to justify strict enforcement, which in turn brings the benefit of deterrence”. With this in mind it is not hard to suggest that harsher enforcement methods are required for the contravention of section 4(1) (b) (i)-(iii) of the Act. This however, does not amount to a suggestion that per se rule contraventions are the only ones which should attract liability of the criminal kind. However, history, “revealed that certain conduct almost always results in serious anticompetitive consequences, and is almost never justified for business reasons”. And as such, criminal sanction should not be restricted to the sections of the Act specifically mentioned in this essay, and can and should be applied to other sections. In the American experience where criminal sanction does arise for breach of their anti-trust laws, the following was said about the type of behavior which is currently under scrutiny,
“There are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation, in an effort to determine at whether a particular restraint has been unreasonable - an inquiry so often wholly fruitless when undertaken.”
What becomes evident then when such prohibitions are labelled as per se, is that they are deemed to be reprehensible in their effect on the economy. Thus, it should not be unreasonable to suggest that such behavior, further betrays the ‘reconciliation’ which was attained by the enactment of the Constitution as it – allows for corporations to conduct business which is to the detriment of the society – while being in a position of privilege and arguably a non-deserved place in the economy of the nation.
With such a label or description, it would be reasonable to impose stricter sanctions on violations of such practices as there are no defenses available to those defendants who meet the requirements of s 4(1) (b) (i)-(iii). As will be suggested below such justification cannot be seen solely in economic terms (the maintenance of the status qou in ownership and control of the economy by a previously advantaged group). There also has to be a realization that, such conduct has grave consequences in respect of the attainment of the purposes of transformative constitutionalism and the new Constitutional dispensation. This suggestion is strengthened by the view that cartel behavior, can be equated to thievery. The debate should not be restricted to the harm such conduct has on the economy and consumers. As suggested previously the justification must be more centered towards the initial aims of the Act. Mainly, a response to nationalization. Furthermore, the focus must also center towards the purposes of the Act and the interpretation given by the courts to the mission of the Constitution of the Republic.
Cartels are described by the Act as containing the following characteristics,
“An agreement between, or concerted practice by, firms, or a decision by an association of firms, is prohibited if it is between parties in a horizontal relationship and if... has the effect of substantially preventing or lessening competition in a market…fixing prices…trading conditions…dividing markets…collusive tendering.”
An interesting depiction of cartels suggests that,
“When cartel-members keep their collusion secret while continuing to promote themselves as competitors, a cartel is a monopoly masquerading as a competitive market, which the cartel members have in fact eliminated.”
The effect thereof being a continued non transformation of the economy as it results in, a concentration of wealth in the same hands, which is argued to also be correlated with political power. This is a disturbing aspect of one of the consequences of cartel conduct. The identified problem of wealth concentration, and transfer of wealth from the consumers to a quasi-monopolistic group – which has the potential of purchasing political favors - is one which cannot be morally or otherwise justified with only a possibility of an imposed fine. Conduct which amounts to theft and flouts the new constitutional mandate – must be sanctioned criminally.
A case in which the Competition Appeal Court, had a chance on making remarks and providing guidance into the operation of s 4 of the Act and the reasons for such, was Competition Commission v South African Breweries Limited and Others where the court on the facts found, that the conduct in question was more suitable constructed by way of section 5 of the Competition Act dealing with relationships of the vertical nature. However, the guidance given by the court in respect of the conduct envisaged to attract liability under section 4 of the section is of paramount importance to the main contention that such type contraventions need to be subjected to criminal sanction.
The case concerned “the largest clear beer producer in the country” being South African Breweries (SAB). In summation SAB concluded agreements with various role players in which it sought to distribute the remaining 9% of its beer production. These role players defined as appointed distributors (Ads) performed the same role as the depots owned by SAB. What was being argued on behalf of the commission is that the agreements entered into between SAB and the role players amounted to a division of the relevant market for the distribution of beer, “by allocating territories to each of the Ads and the depots which agreements prohibited the Ads from trading outside of the contractually defined territories. As aforementioned the court found that the relationship between the parties was not of a horizontal nature. However, it can be seen that, the agreements in place between the parties regardless of the horizontal or vertical nature – brings to light the implications of the Act concerning corporations whom are devastatingly dominant in the South African economy and people whom such corporations do business with. Albeit lawful business, the seeds planted by the pre democratic regimes have preordained such an outcome and the Act does not provide for any refugee to the continued dominance of such corporations. Something which as suggested throughout would have been provided for by the nationalization policy.
The court found when analyzing the conduct sought to be brought under investigation by the section stated,
“Our legislature, when it passed the Act, did not favour a judicially constructed rule. By contrast, it provided expressly in terms of s4(1)(b), that any direct or indirect fixing of a purchase or selling price or the dividing of markets by allocating customer, suppliers, territories or specific types of goods or services or collusive tendering constituted an agreement which is prohibited.”
Such agreements are the “most serious legislative prohibitions against a defendant” and as aforementioned no defense can be offered where the requirements of the subsection are meet. The wide scope of application which is given by the court to potential infringers is a welcome on, where the court expressed the view that,
“The animating idea of the characterization principle is to ensure that s4(1)(b) is so construed that only those economic activities in regard to which no defence should be tolerated are held to be within the scope of prohibition. Whether conduct is of such a character that no defence should be entertained is informed by common sense and competition economics.”
The suggested understanding of common sense be the understanding that because of the privileged place the corporations find themselves within the South African country, and because of the aforementioned constitutional goals any infringement of the Act, needs to attract criminal sanction. What the case demonstrates is that the fact that SAB is in a tremendously advantaged position in the South African economy by virtue of measures taken by the previous regime, which were intended to have the exact outcome as the one SAB finds itself in. What SAB sought to do was to continue its dominant position in the market with measures which are lawful. The agreements that it had with its distributors were wholly one sided, and also prevented innovation and profits on the part of the distributors. In a case where SAB was found to have acted unlawfully the Act allows a court to the following powers:
“The granting of interim relief, rulings on prohibited practices and mergers, adjourning hearings where prohibited practices might qualify for an exemption, imposing administrative fines, requiring divestiture in the case of disallowed mergers and proven prohibited practices, confirming agreements as consent orders.”
The lack of criminal sanction is suggested to be a mistake if, the result of the conduct in issue and reason for such prohibition is analyzed as aforementioned.
In conclusion, the history of the enactment of the Act is a precarious one, and as aforementioned, the Act does not do enough, to address the reasons for an initial nationalization policy call. This has been demonstrated by how the Act is restricted to affairs of corporations. It was rightly contended by Markovitz when he stated, “Providing a good standard of living for all the peoples of Africa requires more than simple economic growth. The alleviation of tremendous poverty requires that those at the bottom of the social structure benefit by receiving part of the product of growth. Two problems of equal importance are: first, the necessity of changing the lifestyles of people and the economic forces of production that have existed for centuries; and, second, the creation of the appropriate political apparatus to guarantee a more equitable distribution of the new goods that are produced.” What the initially proposed nationalization policy was cable of doing, was it at least promised the people of South Africa a more tangible and direct claim to the economic fruits produced by the apartheid regime through industry of all its kind. What the Act does, and will continue to do, is make matters of Anti-trust law into matters predominantly disputed by the previously advantaged groups in South Africa, and the foreign corporations who took advantage of the previous regimes policies. The tangible claim which would have accrued to South Africans as a whole by virtue of the removal of the industry from the hands of the current holders – and placing them in the hands of the State for an example for the benefit of the society as a whole – which is one form of nationalization. This tangible claim by the adoption of the Act was lost on the 30th of October 1998. The claim is now replaced with political party manifestos promising everything, everyone would want to be promised by the government – such promises however do not account for where the capital to realize such dreams will come from. When this suggestion is understood fully - to fully transform the society as envisage by the Constitution, court pronouncements about the ambit and application of the supreme law, contraventions of the Act cannot be confined to payments of money alone – criminal sanction must ensue.
Bibliography:
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to be finished