Drive: “The Surprising Truth About What Motivates Us”

Here is a book:


But better, here is a video clip that summarises said book.

And here is the basic summary:

  • As it turns out, bonuses are only a good incentive when you are performing a task that is menial and requires no thought process whatsoever.
  • Money is only important when you don’t have enough of it. Once your physical needs are met, money stops being a motivator.
  • In fact, once you head past a certain point, monetary rewards become anti-motivational.
  • From what I recall from the book (I read it a while ago), this is because the stress of losing that money by not being good enough becomes an increasing distraction as the size of your bonus goes up – until it becomes a serious hinderance*. *If I asked you to solve a quadratic equation, and I offered you $10 if you got it right, you’d probably be quite relaxed about doing the sum. But if I offered you $10 million to get it right, I reckon you’d probably hyperventilate yourself into leaving the answer blank. In fact, I’m getting a little stressed just thinking about it.

Based on the psychological studies that are out there, here’s what does motivate:

  • Autonomy
  • Mastery
  • Purpose


  • I want to decide what I want to do.
  • And I want to get better at the things that I like doing.
  • And in particular, I want to feel like I’m making a difference in the world by doing what I’m doing.

So in a nutshell, you’re really driven when:

  • You’re not doing a menial job.
  • You’re paid enough to not care about the money (or you’re already sufficiently rich)
  • You’re doing what you like doing, when you feel like doing it
  • You’re getting better at doing what you like doing
  • And you don’t feel like you’re being self-indulgent, because you’re helping the world become a better place.

There is a cynical part of my brain that wants to say

“So… We’re most driven when we have a dream job?”

Maybe that’s too cynical. I reckon that the real point is: stop paying big bonuses to the bankers.

Also, that video clip is so excellently illustrated that you should watch it just for that.

An appreciative shout-out to Gareth for mailing me the link. You’re a legend.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

Farewell QE. But where was all that inflation?

About 15 hours ago, Janet Yellen came out and told the world that Quantitative Easing was officially over.

It almost makes me a little nostalgic.


Anyway, now that it’s over, I’m going to repeat myself a bit and ask: what the hell happened?

Where was all the inflation?

Mr Paulson? Mr Gross? Any of the many that threw out dark warnings about the coming collapse of the US dollar in waves of global calamity?

If I were going to be completely honest, I’d have to include myself in that list. Specifically, this post: America’s Hyperinflation. *looks embarrassed*

Here’s the basic summary of what that post said:

  1. Inflation is one thing. Hyperinflation is…something else.
  2. A line that I’m still proud of: “Inflation is a rise in prices. Hyperinflation is the loss of faith in a particular currency as a medium of exchange – as expressed by excessive rates of inflation.”
  3. My call was that some kind of policy/intervention/fiscal shock would trigger that loss of faith, and then all that created money would funnel itself into a hyperinflationary spiral.


Three possible places to go from here:

  1. “Oh please – it just hasn’t happened yet, but it’s a-comin’. Y’all mark my words now…”
  2. Or: “The inflation happened, because deflation didn’t happen, duh. And also, you don’t understand what QE is – it’s not outright money creation – it lacks a transmission mechanism… <insert technical defence>”
  3. Or, my preference: “I’ve realised something(s) that I didn’t consider at the time.”

The best place to go would be “gloating”. But that’s reserved for the inflation nay-sayers – and Paul Krugman already has that sufficiently covered in Knaves, Fools and Quantitative Easing.

Realisation: We need to redefine inflation

Or, rather, we need to be quite clear about what type of inflation we’re talking about.

When we talk about inflation, we usually mean consumer price inflation, as expressed by movements in the Consumer Price Index (CPI). It’s what gets Central Banks are hot and bothered. And the idea is usually expressed as:

When extra cash goes into the market, you have more money chasing the same amount of goods and services. Therefore, the value of money goes down relative to the value of goods and services. But because those goods and services are denominated in money terms, it means that the price level has to shift upwards in order to reflect that fall in the value of money.

The trouble is: that inflation leaves out the fact that the economy is not just goods and services. An economy is goods and services and financial assets.

In ‘normal’ situations, you can probably get away with ignoring financial assets. Or with quietly assuming that financial assets derive their value from goods and services – because their values are based on current and future earnings that are in turn driven by the provision of current and future goods and services.

But in a society that has entrenched dynastic wealth, my personal feeling is that this assumption starts to fall apart.


Because the investment in financial assets stops being an alternative to consumption. As someone becomes wealthier, investment takes on a life of its own. You need to put the money somewhere, and you can’t spend it fast enough. I mean, if your wealth grows by $1 billion every year, even if you dash around buying yachts and hosting lavish banquets, your spending becomes a nonsensical blip on your radar, and the pressure to find a home for that unspent cash becomes an imperative.

In short, you don’t just “spend the money” in order to preserve its purchasing power.

Let me give a real world example: Carl Icahn lost $200 million overnight two weeks ago when his investment in Netflix plunged 27%.


Compare that to the small amount of spending that probably took place that night. Maybe a nice hotel, a chauffeur, a lobster dinner. That’s less that pennies by comparison.

Meaning that in a plutocratic world, your investment strategy can consume your wealth faster and with greater finality than any spending spree.

So when we look for signs of inflation in today’s world – the world of Piketty and co – we can’t restrict ourselves to goods and services. We have to look at financial assets.

Now bearing in mind that we have had no real good news on the economic front since 2008, I give you…

The US Corporate Bond market:

Screen Shot 2014-10-30 at 9.09.44 AM

The US Treasury Bond market:

Screen Shot 2014-10-30 at 9.09.30 AM

The High Yield USD-denominated Corporate Bond market:

Screen Shot 2014-10-30 at 9.09.13 AM


The Australian Bond Market (because why not):

Screen Shot 2014-10-30 at 9.08.45 AM


The US stock market:

Screen Shot 2014-10-30 at 9.06.48 AM


The UK stock market:

Screen Shot 2014-10-30 at 9.06.39 AM


The German stock market:

Screen Shot 2014-10-30 at 9.06.22 AM

The Dow Jones Industrial Average:

Screen Shot 2014-10-30 at 9.06.12 AM

Each is doing a fairly glorious job of presenting itself as a boom market.

But it’s not a boom market.

No one is optimistic about the economics. And yet…

Can I offer some historical comparison?

Here is the Zimbabwean industrials index during its hyperinflationary times:

When central banks create money, the first port of call for inflation is financial assets. It starts there, and then it’s meant to converge back into the market for goods and services.

So over the last five years, we haven’t “not had” inflation. We’ve had the first wave of it – in the financial assets market.

Without any improvement in the fundamentals of the consumer marketplace, the investor marketplace has boomed.

So is inflation “always and everywhere a monetary phenomenon”? Of course it is. It’s like economic physics: more liquidity = inflation. We’re just looking for it in the wrong place.

The Trillions-of-Dollars Question: Will The Markets Converge?

They could.

Or, conceivably, they may not.

Traditionally, the convergence is driven by:

  1. Falling asset prices, as the wealthy liquidate their assets to crystallise their capital gains and use it to buy lifestyle goods);
  2. Increased liquidity entering the consumer market (through spending by the wealthy trickling down into the lower classes – hence the “trickle-down economics” term).

I’d also add in a third factor: foreign-local good arbitrage. In smaller inflationary scenarios, consumer goods are underpriced relative to financial assets and goods available in neighbouring countries. So you get inflation arising from the hoarding and/or export of cheap consumer goods in the inflating country – and you also get inflation on imported goods, where importers attempt to preserve the real value of their investment in inventories by raising their prices.

Some observations:

  1. If the depression is global, you don’t get quite the same foreign-local good arbitrage. At the very least, the force is not as powerful as it would be in a small inflating country.
  2. I’m not convinced that dynastic wealth would liquidate its assets and spend the proceeds. If there is any liquidation, it would be a reallocation between asset classes, not a reallocation between spending and saving.
  3. In the end, consumer price inflation demands consumption. And we seem to be moving toward a global economy where those with the ability to consume, don’t – and those with the desire to consume, can’t.

Which may mean that the current discrepancy between financial assets and the consumer goods and services markets is actually not a discrepancy, but a new equilibrium.

PS: I realise that this is a bit of a repeat of the Bubbles post from last week. But I wanted to flesh it out.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

The Investor Diaries: Week 32

The Preamble

For the background to this series of posts: herehere and here. And the summary:

  1. Small investors have some investing options.
  2. You can invest occasionally in lump sums (the once-off investors) or monthly through debit orders (the monthly investors).
  3. As for things to invest in, I’m a general fan of low-cost equity-index-tracker ETFs (as is Warren Buffett). But there are other possibilities as well.
  4. This series of posts is there to see which would work out well.
  5. Then there are some indicators at the end. Because why not.

A look at the week everyone had:

Once-Off Investors

In pictures:

Week 32 Once-Off Graph

In numbers:

Week 32 Once-off Table


The almost not much to say, really. Some small recoveries on the stock market and exchange rate fronts, while gold is having a torrid time of it (I’ll get to that just now).

Monthly Investors

In pictures:

Week 32 Monthly Graph

In numbers:

Week 32 Monthly Table


Gold: really not having a great year.

The Indicators

Week 32 Indicators

The Exchange Rate continues to strengthen:

Week 32 ZAR USD Exchange Rate

The JSE has remained fairly stable in Rand terms:

Week 32 ALSI


But it’s continuing to recover in real terms:

Week 32 ALSI USD

10 Year Government Bonds continue to strengthen (probably on the back of the exchange rate strengthening – or the improvements represent the same improvement in general investor sentiment):

Week 32 govt bond

Gold and Platinum are dipping slightly:

Week 32 Platinum and Gold USD


And it’s slightly worse in Rand terms:

Week 32 Platinum and Gold ZAR


I’ve spent a fair amount of time over the last few weeks thinking about platinum and gold. In particular, about the growing disconnect between the asset price and the market “fundamentals”.

If we were to narrowly define market “fundamentals”, we’d say that there is an commercial usage for gold and platinum (catalytic converters, jewellery, etc) – and the production/mining of those metals is directly linked to the need/demand for those metals. So in theory, the price should be determined by those demands, and the supply of the mining houses.

However, there is also a very strong investor-speculative demand for those metals. A demand that’s driven by (I’d guess) two things:

  1. The investor view of the future commercial usage of those metals; and
  2. The investor view of how other investors will buy/sell stocks of precious metals in response to their fears/lack-of-fears of global inflation.

It’s the second one that’s problematic.

In the world of Quantitative Easing, there were lots of fears of inflation. This drove up the prices of gold and platinum – as lots of important people made big calls about the coming inflation (of course, what they missed was that the first wave of big inflation would be in asset prices, not in consumer prices – and they were unwittingly [or not?] perpetuating it).

Today, just a few hours short of the end of QE, we have lots of fears of deflation.

The trouble is: inflation, whether it takes place in the consumer marketplace or the investor marketplace, is the great decimator of the middle class. It robs them of their relative purchasing power. And unfortunately, the middle class is the consumer.

All that (financial) asset price inflation has accomplished is to exacerbate the inequality gap. And you can’t have consumer-price inflation when the consumer lacks the means to consume in the first place.

So who really wants to hold inflation-hedges when there is no immediate inflation to hedge against – other than asset-price inflation, which is theoretically a good thing? And more specifically – who really wants to bet on a growing demand for inflation-hedges? If anything, you can bet on the short-term disinvestment from inflation-hedges…

So the investor-speculators are dropping their reserves, driving down the prices of gold and platinum – and in the process, thoroughly disrupting the supply-side of the equation by forcing the mining houses to be loss-making.

It’s not really sustainable. But if you’re looking for a big correction – I think we’ll find it most pronounced in those asset classes which have traditionally been perceived as inflation-havens.

The same sort of thing is happening with the oil price. Investors anticipated oil supply disruption. And as it turns out, they over-anticipated it. Hence:

Week 32 Oil Price

Week 32 Oil Price ZAR

We’re living in interesting times.

Until next week!

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

SHOCKING: Discovery does actually cover you after a car accident…

Since Sunday, my facebook newsfeed has been awash with links to this article: “A SHOCKING DISCOVERY FOR DISCOVERY MEDICAL AID MEMBERS“.

It can be found at the website of Ronald Broboff & Partners Inc. – the “leaders in medical negligence claims and road accident fund claims since 1974″. The law firm has recently had an awkward string of court losses – and presumably, they’re taking it to the people. Quite publicly.

The Vendetta

The basic gist of the complaint/letter/declaration/conspiracy theory:

  1. Discovery Health are evil bastards.
  2. They have a team of attorneys headed by Jeffrey Katz, who are even eviller bastards.
  3. Jeffrey Katz forces the victims of car accidents, and their next of kin, to sign unlawful undertaking documents in the hospital.
  4. A quote: Discovery’s unlawful undertaking document forces the member to agree to claim against the RAF [Road Accident Fund], at the members own risk and cost, so that Discovery be reimbursed in full, without any deduction of the usual substantial legal and medico legal costs often running into hundreds of thousands of rands.
  5. According to the complaint, the document threatens to cut off medical care if people don’t sign.
  6. And now, Ronald Broboff & Partners Inc. feel that there is a vendetta against Ronald Broboff & Partners Inc. because:
    1. Discovery is getting less money from the Road Accident Fund.
    2. Discovery faces the prospect of a mass exodus of members when they discover that RBP is fighting the good fight on their behalf.
  7. The vendetta is laid out in some detail, with the juicy title: “DISCOVERY’S VENDETTA – THE EVIL PLAN”.
  8. The evil plan apparently involved Discovery finding some people to lay a complaint against Ronald Broboff & Partners Inc. “to serve as pawns”. From what I can tell, these people seem to have won their lawsuit against RBP – further proof of Discovery’s dastardliness.
  9. There are some affidavits to read (totally worth reading): here.

It’s a lot to read – I’ve probably missed some finer details. But I got bored by all the references to the Law Society.

The Unlawful Undertaking Document

Because I’m a sceptic by nature, I went and read the original document that the “poor” complainants were forced to sign. You can find it on Bobroff’s website (Annexure 6), but I thought that I’d save you all the trouble and screen capture it:

If you read nothing else, read section 2. Did anyone else notice that this “unlawful undertaking document” that’s being rubbished about actually mentions Broboff Attorneys by name?

Here’s my reading of the document:

Dear Claimant

You’ve been in a Road Accident. This means that you’re entitled to claim your medical expenses from the Road Accident Fund.

In the interim, we will be paying for your medical expenses.

It seems that you’ve decided to go and claim from the Road Accident Fund, and you’ve appointed Mr Broboff as your attorney. If you want to engage him – then that’s your business, and you should pay for it.

However, if you are successful in your claim, then you’re obliged to refund us for our medical expenditure before you pay anyone else.

Even before you pay Mr Broboff.

This condition was in our Terms and Conditions. But because we know that you don’t generally read terms and conditions, we’re advising you of that clause right here and now.

All the best with your claim

Discovery Health

The Aftermath

Discovery have responded, as have Moneyweb. You can read those responses here – and the word “defamation” is being thrown about quite strongly.

My favourite part from the Moneyweb article:

It is clear that RBP tries to use the document to divert the industry’s attention from the precarious position the firm finds itself in.

RBP has recently been on the receiving end of numerous adverse judgments in several courts, including the Supreme Court of Appeal (SCA) and the Constitutional Court. The rulings found that RBP’s common law contingency fee agreements are unlawful and that the firm grossly overcharged several vehicle accident victims it represented at the Road Accident Fund (RAF). Several judgments also suggest that Ronald and Darren Bobroff may be guilty of improper conduct. This could result in their names being struck from the roll of attorneys.

Despite this, RBP continues to try and justify its contingency fee agreements on the basis of a determination by The Law Society of the Northern Provinces (LSNP).

The LSNP also recently labelled Darren Bobroff “a disgrace to this society” during a disciplinary hearing for his defamatory postings on social media.

The key points from Discovery’s response:

  • The Scheme always pays for the treatment of any member or dependant injured in a motor vehicle accident in accordance with the member’s specific plan type, no questions asked.
  • If a member or dependant subsequently becomes entitled to any benefit from the RAF, the member or dependant may submit a claim to the RAF for compensation and reimbursement of related medical expenses. The Scheme does not force members to claim from the RAF.
  • If a member or dependant receives compensation from the RAF for medical expenses, the member must then refund those amounts previously paid by the Scheme for the member’s medical expenses. This is to avoid the member being unjustly enriched at the expense of the Scheme by receiving double compensation for the same health event.
  • If the member does not receive any compensation from the Road Accident Fund, the Scheme will remain liable for the costs of the treatment subject to the chosen plan type of the member, and will never require that the member repay these funds to the Scheme.

What’s Really Going On?

If I was to make some observations, I would say this:

  • Ronald Broboff & Partners Inc. makes some of its money by persuading road accident victims to claim from the Road Accident Fund and then taking a portion of the proceeds.
  • Provided that the medical aid of the victim agrees to pay the medical expenses, the road accident victim gets to keep all the proceeds from their RAF claim (less the legal costs).
  • But if the medical aid scheme says “That’s not fair – you can’t double claim like that” – then what is the incentive for road accident victims to claim from the Road Accident Fund?
  • And more importantly, how will RBP collect their fees if Discovery Health gets first bite at the claim?

Also: what would happen if all the medical aid schemes followed suit?

As a final disclaimer – I do agree that preventing a road accident victim from paying their legal fees out of their RAF claim is a little bit unfair. But there doesn’t really seem to be a good solution here, because “let the victim claim twice” surely can’t be the right answer…

Perhaps a standard legal fee of, say, R50,000 could be permissible in the Ts and Cs?

Just a thought.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

The Laffer Curve: invented on a napkin – should have stayed there.

I am regularly amazed at how many great ideas/novels/Harry Potter characters were invented in restaurants and then jotted down on serviettes. Mainly because all these people seem to be carrying pens. And if they’re not carrying pens, then they’re borrowing pens from waiters – although it’s apparently a step too far to ask for a piece of paper from their order pads. Even though attempting to write anything on a paper napkin is an exercise in frustration.

That aside, you should know that the Laffer Curve is also on this prestigious list of ideas that occur to great minds over a rib-eye.

And good news, he used a cloth napkin (easier to write on. Also: ruder – but what’s a bit of rudeness when you’re talking importantly?):

Anyway, the basic summary is:

  • If you make the tax rate 100%, then no one will work. Because then they’ll be working for free. Therefore: you raise no tax revenue.
  • If you make the tax rate 0%, then by definition, you raise no tax revenue.
  • Thus, if you step up from 0%, each tax hike results in more tax revenue.
  • Thus also, if you step down from 100%, each tax cut results in more tax revenue.
  • So there is an argument for saying that tax cuts result in more tax revenue – it’s just a question of where you sit on the Laffer curve.

The Laffer Curve:


For the record, I did write about this some time ago – so for a slightly more favourable version of the Laffer Curve, have a read of Tax-oh-no-mics 106: Changing Tax Rates Make Me Laff.

So, as with any theory, there are some broad simplifications that need to be mentioned:

  • The thought experiment assumes that everyone pays tax (in practice, the bulk of a population sit at 0% already, because they’re not eligible to pay tax in the first place).
  • At a tax rate of 100%, people would still work. Firstly, because remuneration is not the only reason that people work. And secondly – communism, for all its failings, did continue to function for long periods of time (even though the lack of private income effectively functioned as a 100% tax rate).
  • There is no talk here of tax evasion – there is an assumption of totalitarian enforcement of the tax code.

You might think that those are outlier observations – and that what’s important is what happens in the in-between tax rates.

But I’d give you this picture of Hauser’s Law:

Hauser's Law

Which is to say: regardless of tax brackets, the actual tax revenues collected as a percentage of GDP have remained largely the same – suggesting that people inevitably end up paying whatever they feel is reasonable.

Anyway – the reason I’m talking about this is a Planet Money episode that I listened to while I made coffee this morning: Episode 577: The Kansas Experiment.

What was the Kansas Experiment?

When Tea Party extremist Sam Brownback was elected Governor of Kansas, he did so on the “I’m going to cut taxes like a Laffer king” ticket. He got hold of Mr Laffer himself, and had him come and speak to the state legislature. And then proceeded to:

  1. Drop taxes on businesses down to zero.
  2. As well as some other fairly-substantial tax cuts.
  3. And then to raise the sales tax a little in order to compensate for the lost revenue.

Those tax cuts came into play on 1 January 2013, and they were meant to make Kansas grow faster than all the states around it.

Only, that hasn’t happened. In fact, the prevailing sense is that the whole thing has made Kansas lag behind the surrounding states. And not helped by this sort of graph:

Why It’s Failing

According to Mr Laffer (in an interview in that podcast episode), the change can’t come overnight. Which is sort of understandable – but also sort of not. Mainly because economic policy is about perception – so you’d almost expect to see a spike of initial activity as people/businesses react optimistically to the tax cuts (as in: “OMG – 0% tax? That’s crazy! Let’s do it TODAY!”). And when you don’t get that, then there is almost a sense of “What does everyone else know that I don’t?” doom and gloom.

To put it another way: would you move your business to Kansas for lower taxes if the general sentiment is that it isn’t working? That entails a whole host of risks that might not even be worth the pay-off.

A Better Reason For Why It’s Failing

This chart:

So I’m going to refer back to that first problematic assumption about everyone paying tax…

As was well publicised by Mr Romney, 47% of Americans pay no personal income tax. That is: their tax rate is 0%. These Americans also happen to be the big consumers.

So reducing the personal income tax rate had no effect on these people. They were already paying no tax. Their consumption was already whatever it was.

Then there are the small businesses, which were the other supposedly big beneficiaries of the tax cuts.

Here’s the thing about small businesses: they probably don’t pay that much tax anyway. Most businesses aren’t hugely profitable. They’re livelihoods. They’re there to break-even after paying everyone’s salaries, and hopefully pay a little bonus to the owner-director, and then maybe close out with a tiny profit (if at all).

Offering them a 0% tax rate? It’s the equivalent of giving the owner a free weekend away to a timeshare chalet in some moderately-pretty mountains. It’s nice – but it’s not the kind of thing that gets you all hot-under-the-collar to expand your business and hire a bunch of people in return.

But Sam Brownback went ahead and gave the 0% taxpayers the option to pay less tax the next time they get a paycheck, and gave all those small business owners that free weekend away, and in exchange, he raised the sales tax.

Which is a tax on consumption – and as it turns out, that’s the only real tax that the 47% pay (because they’re the big consumers).

Also, because the State was now collecting less money from all the tax cuts, they had to cut back on spending programs. Which mostly benefited the 47%. And the small businesses that have been built around the fringes of those spending programs (like the little grocery and stationery stores that operate near state-funded schools, etc).

So in short:

  • The consumers were paying higher taxes.
  • Small businesses were suffering from the drop in consumption (and as anyone will tell you, paying less tax when your business is not doing well is not a good thing).
  • But the wealthy savers got to save more.

Which is really my way of saying: you have to be careful about discussing economics over dinner. Because theories that work well on napkins usually involve wine. And a theory that pairs well with a decent Syrah probably isn’t that well thought out…

For more, I give you Paul Krugman. And this awesome blog post.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

An Interlude on a Friday

I’ve been in the process of travelling since 4:30 this morning. Earlier if you count the time that I was awake waiting for the alarm to go off.

Thus far, I’ve done the plane and the train. Now, I’m about to start part 2, which involves a road trip and many many toll gates.

Ah – wedding season.

In the interim, because I can’t break an unbroken record of daily posts, here is this:

Happy weekend!

An Open Letter: how South Africa discriminates

In my day job, I spend most of my time dealing with the administration of compliance.

Not because I want to, of course – I’d much prefer to be “ideas guy” with all the big-picture-plans and the big-shot-schmoozing.

But it seems that my OCD is more valued than my thoughts. And admittedly, I have myself to blame – I am not patient about watching something come to nothing because it gets stuck with someone who can’t bear the thought of actually going to the bank right now and sorting out the fine-print. So on any given day, I get to be “ideas guy” for about 10 minutes before I turn into “details guy” for the next three weeks.


I bring this up because it demonstrates that South Africa has a deep and institutionalized hatred of business.

Businesses are treated as though they are wage-gouging, money-laundering, tax-evading, mass-firing, credit-mongering, deeply-racist and generally-all-out-evil bad guys. And those bitches needs to be regulated.

Curiously, regulators seem to feel that most of this can be fixed by regularly requiring one to prove one’s address.

Which is deeply mysterious to me. I mean – what exactly does proving a physical address assist with? Finding you when you’ve done evil? Because evil-doers are not known for getting the hell out of Dodge?


The trouble is – it costs a lot of time and money to be constantly trying to show that you’re not wage-gouging, money-laundering, tax-evading, mass-firing, credit-mongering, deeply-racist or a generally-all-out-evil bad guy.

And to be honest, the compliance burden is only really sustainable if you’re a Big Institution that became Big by being all those naughty things back when times were good and life was easy.

So who does this really affect?

The SMMEs and entrepreneurs and so on. Who are forced to spend much of their time and money on being compliant when really, they should be focusing on trying to get off the ground.

Despite the fact that small businesses are responsible for:

  • 34% of South Africa’s GDP;
  • 60% of employment; and
  • 80% of all new jobs created.

So here’s an angry letter about it:

Dear South Africa

The craziness must stop.

Do you know how hard it is to set up a new business for a first-timer venturing out of the world of formalised employment?

Oh – I’m not talking about the things that you’re thinking of. All the stress and anxiety and lack of funding. That – that is the easy part.

I’m talking about the practical stuff. I have a list:

1. The Banks


3. Employees

4. Other Businesses

To begin…

How the banks hate you

The minute you’re an entrepreneur: farewell new credit cards; farewell car financing; farewell mortgages. You’re on your own, because you’re a credit risk.

Of course, if you hire someone to work for you – they will be able to apply for credit cards and car financing and mortgages off the salary slip that you give them each month. But you won’t.

You’re a credit risk.

How hard it is to pay tax

The minute you step out, you become liable for tax in all kinds of new ways. If you decide to operate as a sole proprietor, then you’re immediately super-suspicious to the SARS efiling system. Your annual return? It’s always flagged for audit. Always.

So you’re forced to start furiously bookkeeping. Or you have to hire a bookkeeper. And more likely than not, you’re going to have to get someone to do your tax for you.

Costing you time. Costing you money.

And don’t get me started on VAT

To register for VAT, you need to prove that you’ll have more than R50,000 in turnover each year. And it takes you at least 21 days to be approved from the day that SARS finally agrees that you’re eligible to register (they’re concerned about VAT fraud, so the onus is firmly on you to demonstrate that you’re not trying to defraud SARS by being a small business that needs its VAT to be refunded).

What this means: your operating costs are 14% higher than a VAT-registered vendor.

You know what else that 14% is?

Your profit margin.

*poof into thin air*

And even once you’re registered, SARS doesn’t like to give refunds for all the months that you were paying an extra 14% of operating costs. So you’re going to be bogged down in more audits because you’re so suspiciously evil-looking for trying to get a VAT refund, you likely-tax-evader, you.

Let’s Talk About National Bargaining Councils for your employees

So if you fall into an industry – which is, you know, the unfortunate side-bar to being a business – chances are, your industry has a National Bargaining Council.


The National Bargaining Council (NBC) will negotiate the terms of employment with the Big Institutions in your industry. And they’ll agree on pension contributions and compensation policies and sick leave payouts, etc.

Then, because businesses will obviously never stick to their word, the National Bargaining Councils will insist that businesses contribute monthly to all these new funds that the NBC will set up for pensions, gratuities, sick leave, vacation pay, etc. And the NBC will take responsibility for making those payments – if you’ll just send your staff along when they go on leave to sign some forms and they’ll get paid by the NBC instead of by you.


Now that they’ve thought about it – perhaps it would be best if you paid the employee, and then claimed the payment back from the NBC fund in question. Which will take months because you could be attempting to defraud the NBC. Because you’re so evil. Refer back to square one.

But you might think that this is just for the big players who agreed to this ridiculous set-up?


So so wrong.

The National Bargaining Council will take their agreed resolution to the Minister of Labour, who will use their legislative power to extend the coverage of the agreement to include all businesses in the industry.

And then the NBC will show up at your door, and charge you penalties for having failed to comply.

Finally, Other Businesses

Because all the slightly larger fish in the corporate sea are concerned about their own compliance, any time you apply for a tender, you’ll be anxiously attempting to prove that you’re BEE-compliant and VAT-registered and regularly-audited and formally-registered and tax-cleared and labour-regulated and fair-policied and all those things that require certificates and registrations and the varying approvals of approved bodies.

Otherwise, they run the risk of running into their own compliance dramas.

Here is my observation

This is the path to much fiscal stability.

But it’ll be a very small fiscus. With a lot of unhappy people. And many of them will be unemployed.

Is this really what we want?

Surely not.

Let the occasional employee get taken advantage of. Let a bit of money get laundered. All that will happen at the edges. It won’t be mainstream.

But this current attempt to rigidly abolish the fringe element is killing the host.

Stop it already.


Your Economy’s Backbone

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at