In 1905 the Chicago meat packing industry was a disgusting mess. For example, borax was added to mask the smell of the rotting meat that went into sausage. The “toilets” were worse than the packing floor, so packers urinated where they worked. At the end of a shift bits of meat were swept up and, yes, mixed into the sausage. The US government was complicit in this unconscionable state of affairs. Firstly, because many of them were taking bribes from the meat industry and secondly, they were remiss in formulating laws to regulate the industry for the benefit of the people who voted them into power. It came to an end when it was exposed by Upton Sinclair, a journalist with communist leanings, and acted upon by President Teddy Roosevelt, a President with a conscience. Ever since then, it has been safe to eat the sausage.
It took guts for Roosevelt to change the sausage status quo. He was the incumbent – he didn’t have to stand in a queue to buy rancid bacon, as White House staffers procured the best bacon in the US for him. He also didn’t need to aggravate Republican Party members by cutting off their access to the bribe trough.
In politics, an incumbent is the person who sways the scepter and after a set period he may or may not stand for re-election, depending on the rules in his region.
In business, an incumbent is the company that has the major market share, and through innovation or marketing tries to grow that market share.
In politics, the incumbent doesn’t always want to relinquish the scepter and often goes to ridiculous lengths to hold onto his privilege and/or to hide his criminality, for example, Donald Trump, a President without a conscience.
In business, the incumbent often goes to ridiculous lengths to hold onto its market share. For example, Kreepy Krauly engaged in many legal battles to keep competitors from making inroads into their share.
This is part of a situation that Clayton Christensen calls The Innovator’s Dilemma. An entrepreneur spends money, time, and creativity to develop an innovative product or service. He makes a lot of money and grabs market share. His dilemma arises in one of two ways. His innovation is easy to reverse engineer (e.g. the Kreepy Krauly), or clone (e.g. Bolt or Taxify). If he has nothing inherent to differentiate his product from the competitors he has to try and block them in court, or he has to compete on price. This is often ruinous if the entrepreneur is still recouping development costs. The other dilemma is the one that Nokia came up against when it dominated the cell phone market: better and newer technology – smartphones.
One way of dealing with this dilemma is to continue with the product that did so well for you and also try to catch up with your competitor. Another way is to abandon your former money maker and chase your competitor. A third way is the Trump strategy – use whatever leverage you have to block your competitor.
The subtitle of Christensen’s book is When New Technologies Cause Great Firms to Fail. Many internal combustion engine (ICE) automakers are getting a sinking feeling as they see the rapid uptake of electric vehicles (EVs) in Europe and the rapacious expansion of Chinese EV manufacturers.
In the US the ICE motor industry has done extremely well for 125 years. These incumbents are starting to produce EVs, but at the same time, they are spending millions of dollars on ad campaigns to change public opinion on the effect of carbon emissions and the viability of electric vehicles. They don’t want EVs to fail, they want to cause their failure.
In South Africa, this dilemma is felt acutely by entrenched incumbents. It is extremely difficult for a new player to enter the ICE playing field. But the new players are playing a different game on another playing field: apples competing with pears, or sausages competing with vegetables.
Therefore, the incumbents are trying to use the government’s big stick to keep the newcomers out. The big stick is the ad valorem [That’s Latin for: we look after our own, first!] tax. It is a luxury tax that exponentially increases with the price of the imported vehicle up to a maximum of 30%. The purpose of the tax is to protect local industries against cheap importers. The effect of this tax though is to hike the price of an EV which should cost about 350 000 to 700 000 and thus price it out of the market.
This is wrong. Because there is no South African EV industry that needs protecting. You can’t protect something that does not exist. For instance, if I started importing competent civil servants, I shouldn’t be taxed on them – as nobody is producing them in any of the nine provinces.
It is also immoral. It is unconscionable. Vehicle emissions contribute to climate change and the government has committed itself to achieving net zero emissions by 2050. This is an act of omission on the SA government’s part. Carbon emissions are a health risk for citizens in the short term and disastrous for the country in the long term. It is just as unconscionable as allowing harmful borax in the sausage a hundred years ago. Our president should push to eliminate this harmful tax immediately because that’s what a president should do. If he takes his head out of the bribe trough. And if he has a conscience.
This blog piece illustrates the independent views of Tim Sandham, who can be reached at [email protected].
