The capital conundrum: why Friedman's shareholder model is a dead end

Share current article via Email Share current article via Facebook Share current article via Twitter Share current article via LinkedIn In a recent fiscal year, Valterra celebrated a meteoric 1,300% growth — a figure that captures the imagination of investors and financial commentators alike. Story audio is generated using AI For three decades, South Africa has been locked in a high-stakes struggle to define the relationship between capital and its developmental mandate. This struggle is not academic; it is the lived reality of millions excluded from the mainstream economy, trapped in what spatial economists call 'Low-Low' municipalities — areas of persistent poverty and economic stagnation. The debate has crystallised around two starkly different approaches to value creation and distribution. The choice facing South Africa today is not merely economic; it is existential. To break the back of multidimensional poverty and spatial inequality, we must reject the seductive mirage of this vulturous model and embrace the architectural Mafisa model by Morena Moshoeshoe. The mirage of shareholder primacy The Valterra model is the epitome of shareholder primacy. Its singular focus is equity appreciation. In a recent fiscal year, Valterra celebrated a meteoric 1,300% growth — a figure that captures the imagination of investors and financial commentators alike. On the surface, this looks like spectacular success. But a deeper diagnostic, utilising the granular lens of the Lehohla Ledger*, reveals a different perspective. This 1,300% gain is a transactional event, not a developmental architecture. The value is captured almost entirely by existing capital holders and executives, typically concentrated in metropolitan hubs or offshore financial centres. This model is the structural engine of the 10:24:66 relationship with capital. In this scenario: 10% of value — the bare minimum required for compliance — is reinvested into local communities or real economic infrastructure. 24% of value is captured by the state through taxation, often becoming subject to the 'Conduit Trap', where funds are lost to inefficiency or corruption before they can be actuated as development. 66% of value — the lion's share — is siphoned off by the corporate entity as pure profit, dividends or capital accumulation for shareholders. This model doesn't close the inequality gap; it widens it. It is the root cause of the 'Conduit Trap' and 'LISA regression' (Local Indicators of Spatial Association), where our national spatial statistics show 128 municipalities regressing while only 48 progress. The Valterra model acts as a vacuum cleaner, sucking capital out of the periphery and concentrating it at the centre. It undermines sustainable development by prioritising transactional wealth capture over architectural wealth creation. The architecture of transformation In stark contrast stands the model pioneered by the Lehohla Ledger answering multiple questions from Indian economist Amartya Sen on freedom as development, British-American academic and economist Minouche Shafik on what we owe each other and Morena Molomi on intergenerational value creation. The 38% is for household/P-asset velocity (the engine): this is the most revolutionary aspect. When 38% of all value generated flows directly to the households of participants — farmers, farmworkers, and local entrepreneurs, then South Africa is winning. This income is not consumed; it is converted immediately into Household Gross Fixed Capital Formation (P-Assets). Farmers buy tractors, install irrigation and upgrade their homes. They become micro-capitalists, building a durable asset base that secures their future independent of the central hub. This is pre-distribution, not redistribution. 28%: state/institutional actuation (the catalyst): this represents the lean, efficient overhead provided by ethical leadership that disciplines capital instead of allowing themselves to be captured by it. This investment builds the necessary central scaffolding — the packhouse, the cold chain, the logistics — that individual households cannot construct alone. This is Institutional GFCF, anchoring the value chain in the community. 40%: corporate siphon-to-value retention (the market): this portion represents the revenue that flows through the corporate off-takers. While this money exits the immediate local community, it is not 'siphoned' in the Valterra sense of Milton Friedman shareholder value. It is the cost of securing a high-volume, compliant supply chain, which is essential for the long-term viability of hubs. The case for resilience: why Valterra fails the DSGE test The Dynamic Stochastic General Equilibrium (DSGE) model, which stress-tests these systems against real-world risks like drought and price shocks, provides the final verdict. The Valterra model is brittle. A 1-standard-deviation shock (e.g., a market correction or a supply chain disruption) causes a 66% revenue contraction, threatening the entire entity's solvency and forcing immediate, painful austerity. The choice is ours Valterra and its ilk is a model for wealth capture — efficient, profitable and unsustainable for society. The 38:28:34 relationship with capital (where 38% goes to the household, 28% to the state, and 34% to the corporate) is not just a number; it is the formula for a developmental state that works for all. We must reject the siren song of shareholder primacy and the 10:24:66 model. We must legislate, regulate, and invest in the 38:28:34 architecture. This is the only sustainable path to growth, equity and a future where capital serves the people, not the other way around. * The author's experience in statistical applications of 65 years has consolidated in what has become 2,752 instruments of the Lehohla Ledger. It is an intellectual trove driven by over 3,500 articles that Dr Pali Lehohla has penned throughout his work life as a bureaucrat and as a member of the public