05/09/2012 Striking Lonmin mine workers during their march to Lonmin's Kareen Shaft which they demanded that it should be shut down. Picture: Phill Magakoe

It is sad to observe the tragedy of Marikana escalating to intolerable levels as the parties somehow try to resolve the situation. There has been a lot of commentary about the causes, who is to blame and what could be the potential remedy to the tragedy.

The tragedy has also been called a Black Swan event, which according to Nassim Taleb are highly consequential but unlikely events that are easily explainable but only in retrospect. The reality of this is that nobody could have predicted this tragedy, which is easy to analyse perfectly with the benefit of hindsight. So I will focus on the current status of the tragedy and how can we solve the problem.

The are loosely three key parties at play in the economy who have to deal with the impact of Marikana: the government, business and labour. The psychological bias that is at play in this tragedy is known as the “non-rational escalation of commitment bias”, which is described as the strong psychological need to justify prior decisions and behaviours by the parties involved in the negotiations.

According to Harvard Business School Professors Max H Bazerman and Deepak Malhotra in their book, Negotiation Genius: “It is often difficult for negotiators to admit that their initial strategy was ill-conceived or that they made a mistake; to avoid acknowledging these facts, they will escalate their commitment even when it is extremely costly, and perhaps disastrous, to do so.”

They conclude that when all the escalation forces – the hope of victory, the need to justify the initial strategy and the desire to beat the other side – come together, simple common sense flies out of the window.

The escalation forces at play in Marikana are further fuelled by third parties, who don’t want a speedy resolution to the impasse because they have nothing to lose.

The establishment of the Commission of Enquiry by President Jacob Zuma and the signing of the peace accord by nearly all the parties involved are common sense resolutions. However, the one party that does not want to sign the peace accord gives rise to a Mexican stand-off situation, which is a deadlocked position where three parties point guns at each other.

According to Wikipedia, the pickle of the Mexican stand-off is as follows: in a confrontation among three mutually hostile participants, the first to shoot is at a tactical disadvantage. If opponent A shoots opponent B, then while so occupied, opponent C can shoot A, thus winning the conflict. Since it is the second opponent to shoot that has the advantage, no one wants to go first.

So the major point of contention in the Marikana wage dispute is the workers demand of a salary hike up to R12 500.

If this is agreed to by business, it makes the mines uncompetitive because you are increasing the cost structure, which the commodity prices cannot cover. This means that there will be no margins left to cover the debt covenants of the mine, which means that the debt holders will have to go for the assets of the mine by closing down the mine.

Furthermore the pension funds that are invested in the mining companies will lose out because the debt holders have to be paid first. All jobs will be lost, which makes the success of getting the R12 500 a Pyrrhic victory.

The government loses out on the tax revenue that is generated by the mines. They have to worry about the social welfare of the workers who would lose their jobs with the mining closure. The money lost by the pension funds, which are guaranteed by the government will be borne by the taxpayers because the government bears the risk.

The suppliers to these closed mines lose out, which means that they would have to lay off workers due to the decreased demand for their products.

The credit rating agencies would then have a negative outlook on government finances because there is decreasing revenue collection from the mines and increased expenditure to provide some social net to the laid-off workers. This puts pressure on the currency exchange, and so on.

The bottom line in a Mexican stand-off is that there is no safe way for any party to withdraw from their position, making the stand-off effectively permanent.

So the only solution is for the parties to trust each other and put their guns down. If not, the first party that pulls the trigger will cause unimaginable disaster, which will exacerbate the current disaster.

Business Report