IN MONDAY’S Thick End of the Wedge (June 1), Peter Bruce defends his previous week’s editorial castigating the Competition Commission and Economic Development Minister Ebrahim Patel for the manner in which the settlement of the construction cartel was announced.
In fact, he goes further than that. He concludes that cartel busting will actually increase prices because, he argues, firms will price the fines imposed on them into their future bids for contracts.
He evidences this simple-minded argument by pointing out that since the bread cartel has been bust the price of bread has increased.
This is no evidence at all. There are myriad factors that account for pricing levels, not least input costs, the exchange rate and, as he points out, labour costs.
So how on earth does he conclude that it was because the bread cartel was broken up that prices have increased? How does he know what the price of bread would have been had the cartel still been in existence? It may have increased by 50%.
The rule of thumb that the US Department of Justice uses for estimating the price premium imposed by collusion is 10%. In fact, it’s probably larger than that, and will almost certainly be larger when it involves colluding to win a large lumpy construction project because the losers have inevitably to be compensated, thus adding a further element to the cost that the winners will pass on to their customers.
Companies can price their fines into future contracts only if they are monopolists or if they continue to collude. They might do so, but I doubt it. This will expose them to even larger fines and greater reputational damage, not to mention civil claims and possible blacklisting.
I share Mr Bruce’s misgivings about the politicisation that was lent to the process by Mr Patel’s attempt to present the busting of this cartel as his doing. In fact, all that amounted to was grandstanding, amply rewarded, it must be added, by the manner in which Business Day and other newspapers covered the story.
The truth is that the busting of the construction cartel, like all other enforcement actions of the competition authorities, has been so successful precisely because it is carried out by independent bodies which investigate and prosecute without being influenced by the agendas of public and private special interests.
The National Prosecuting Authority and South Africa’s anticorruption law enforcement bodies should take a leaf out of the Competition Commission’s book. In truth, the commission is one of the only public bodies that is successfully imposing consequences on those who perpetrate corruption, in this instance the subspecies of collusion. Rest assured that, had special interests — public or private — been able to intervene in this settlement, the cartel would not have been bust. At best they would have still been engaged in interminable discussions in proverbial smoke-filled rooms.
If Mr Patel wants to play a useful role in the unwinding of the construction cartel, he should take responsibility for co-ordinating the civil claims that those public-sector institutions damaged by the cartel should now be making.
This will no doubt attract further ire (and publicity) on the editorial pages of Business Day, but it will usefully impose even greater consequences on those that engage in the antisocial and economically costly business of collusion.
Executive Director, Corruption Watch