Bill Moss, Passive Capitalism and the Challenge of Investing in Indigenous Business

In a prosperous community with good planning and secure financial support it takes anything up to three years to set up a profitable green field small business. In a community where there are few existing businesses and when financial support is non-existent it will take at least three to five years to get to first base. Ironically, though some aspects of the business development process are easier in tough environments. It is arguably easier for a more marginal business proposition to get funded in an Indigenous area or region where any economic development is desperately needed.

This latter scenario frequently leads to perverse outcomes. Governments have tended not to fund businesses based on any assessment of business capacity or success. Old wizened Indigenous leaders argue that government likes to keep Indigenous organizations on the drip. I was recently looking at a business that had been profiled on the Indigenous Stock Exchange website some years ago and was amazed to see that it had been funded to the tune of some million dollars based on its ability ‘to meet community needs’. In one fell swoop the Federal government had undermined any prospect of that organization meeting business goals. It would simply meet community needs and then in four years when the funding runs out, it will be in the exactly same situation as it is now – struggling for funding with no commercial plan for the future. The irony is this was a business with strong commercial potential. Morever people within government understood this, its just that people from a social department don’t care about the rationale and motivations of people from economic development, and its easier to fund social development!

The perverse role of government investments in Indigenous communities is well known. It generally comes under the heading of passivity. Noel Pearson has made the term “passive welfare” famous, but the problem extends beyond welfare provisions. The way governments’ fund Indigenous organizations also encourage passivity and dependency. Invariably they are either not funded to do business or funded for the wrong reasons and with perverse incentives attached. Two years ago there was an outbreak of common sense from the Howard government with a new kind of funding in the form of a one off multi-million dollar grant to Moree’s Aboriginal Employment Service and to Indigenous Community Volunteers. The onus is on each organization to raise its own funding and to stand on its own two feet after the initial capital injection. This, with the right protections of the initial investment and with an clear understanding that there will be no begging for core resources from that point on, needs to be more widely adopted by governments of all persuasions. It would create a far more entrepreneurial and dynamic Indigenous third sector that would encourage greater business development.

But much is now known about governments tendency to fund passivity, usually there have to be acts of sheer bastardry or ignorance to perpetuate this situation, the tide is on the turn and governments are getting better. But there has been no focus on what I call passive capital or more broadly passive capitalism and its role in the under-development of Indigenous Australia.

Bill Moss’s paper on improving the process of Indigenous business development is very much to be welcomed. It is based on the successful Gunya tourism venture at Titjikala, South of Alice Springshttp://www.gunya.com.au/  Moss argues that in order to create more successful ventures there needs to be tax deductability for investments in Indigenous Australia akin to those that applied to the Australian film industry and other industry areas of national importance. Moss’ idea will solve 25 per cent of the problem of attracting capital to Indigenous business development. But there is a lot more to do in challenging Australia’s business investment culture and the way Australian business views Indigenous Australia. Certainly there has to be a lot more effort put into matching investors and investment sources to the business opportunities that exist in Indigenous communities.

What I call passive capitalism has four dimensions.

The first dimension of capital passivity involves being so wedded to existing business forms that relatively few new businesses are funded or supported by the mainstream financial and industrial sectors. For the non-Indigenous community in Australia this is no so much of a problem. In the twentieth century most Western nations have relatively stable economic foundations and even middle class individuals have been able to accumulate enough savings to fund modest business enterprises of their own. There is enough diversity of capital around to ensure that economies and societies are constantly growing and changing. So even when the finance sector is ultra conservative there are enough sources of capital to fund relatively good ideas. But it should be noted that one of Australia’s national weaknesses in the post war period has been in its ability to fund and develop new industry sectors. This arguably still remains a weakness for the Australian economy which is still heavily dependent on primary industries such as the resources and material sector. Our luck has never run out, but there has never been any luck for Indigenous business development in remote and regional areas. Over the past one hundred years there have been numerous examples of successful Indigenous businesses being closed down by governments who insisted that Aboriginals could only work for subsistence wages in protectorates or missions. So what may be called Australia’s traditional lack of entrepreneurial behaviour outside tried and true business areas has hit the Indigenous community particularly hard.

The second form of passivity is related to the first. It is about existing businesses wanting only to be associated with success. When at the Indigenous Stock Exchange we approached banks and businesses to fund our trading floors in remote and regional areas, a frequent refrain was: ‘we don’t mind putting up the piddling amount of money you need, but we want you to identify one or two winners that we can be associated with’. The problem here was that these banks and businesses had forgotten or de-programmed their knowledge of business development from their desire for good public relations. In business as in life, you often have to fail in order to succeed. We wanted to take regional Indigenous communities through a process where they had to move over time through a process that would invariably involve failures. To pick winners was to encourage a completely unrealistic and unsustainable culture especially in regions and communities where, even at the best of times, it is hard to run profitable businesses. So when we were confronted with the ‘just pick a few winners’ scenario my advice was always to politely refuse any support being offered – a quite hard choice to make.

The third form of passivity is the inability of Australia’s investment community to understand that big is not always best and that Indigenous Australian business is a new market that must be built slowly. It is a tragedy that most investment funds I have talked to reject Indigenous business ideas because they are just too small to be bothered with.  The great majority of solid business opportunities in Indigenous spheres are small micro business. The literature of development from Bengladesh to Denmarkoverwhelmingly supports the development of small, micro businesses. One small successful micro business is like a tree falling in a forest, it has myriad flow on effects that many of us never see or understand. In my opinion the dramatic failure of organizations like Indigenous Business Australia (IBA) and the Indigenous Land Commission (ILC) is that they have accepted mainstream financial advice which sees them only favouring investments in big, commercial undertakings which will invariably be staffed by white managers and service staff and have predominantly negative impacts on Indigenous community relations and self esteem. I have lost count of the number of Indigenous people who have spent up to two or three years trying to get access to start up capital funding from IBA only to be denied at the last instant for some paltry reason that usually involves alternately an impossible commercial goal or a government bureaucratic criteria often it seems thought up at the last minute. Some may argue that this is all part of the learning. But frequently people who go through and make application to IBA or the ILC are so demoralized at the end of the process that they never entertain any further prospects of running a business. Often they are encouraged to think beyond their capacity by the IBA requirements and ambition and then brought down to earth with a crunch. Some may argue that again all this is part of learning about business. This might be true if we were talking about a normal market economy where a knock back from one bank might be a badge of pride, where one door closes and another opens, but in Indigenous Australia. IBA is the only door and, for all the reasons above, there are few other opportunities for seeking investment. Of even more concern is the fact that the funds that enable IBA and ILC to exist are funds which are supposed to help Indigenous people and communities to participate in mainstream Australian society and in partial compensation for their loss of lands and rights!

Finally I do not think that Australian Business understands the importance of social business and its role in creating business and economic development. One of the deepest disappointments I had when working for the Indigenous Stock Exchange was my failure to attract a small sum from Dick Pratt for the trading floor we ran in his home town of Shepparton. It wasn’t the money that mattered. My own family and Dick’s crossed paths in Shepparton when he was a young Jewish boy facing mild discrimination there. Dick was then a champion football player who went on to play for Carlton just like another Shepparton area man of fame, Doug Nicholls, who was also a friend of my family. It seemed automatic that Dick would understand and support the Indigenous communities entrepreneurial sporting club Rumbalara where we held our trading floor. When we held the trading floor in the club footy rooms thirty Indigenous business people came forward and presented their dreams and ideas to business people by video link in London, Sydney,Melbourne and Canberra. But there was not one cent of support from Dick Pratt, nor was there one iota of moral support coming from this most famous business man of the region.  I still ask myself why? Perhaps it was because he viewed our venture as amateurish, perhaps it was my own failure of communications, perhaps there was some reason why Pratt would not support the renegade Rumbalara that has ruffled some feathers in the Goulburn Football League but I think perhaps most of all there was a “no-compute” from Pratt and his advisors about social business. They did not understand that a sporting club could be the pathway for one hundred young Indigenous business people. They did not understand, incredibly, given Dick’s own background, that the skills and confidence and teamwork that are learned on a football ground can lead to business acumen and entrepreneurship. They did not understand that it was not money but just recognition and moral support at a grass roots level that was most needed. More than anything else the Australian business community needs to develop some guts and courage to do these things.

Based on my three year experience in leading the BAMA Indigenous Stock Exchange trading floors in remote and regional communities, there is no shortage of potentially outstanding Indigenous entrepreneurs and solid business ideas. Every where the ISX hosted a trading floor there were at least thirty solid ideas and people that would come forward. In many cases these were communities where we had been previously told there were no business ideas and no-one who wanted to develop businesses. In every region there were strong points and strong areas where it was possible to identify mutually supporting enterprise clusters.

Indigenous business people may have some weaknesses. Many of these Indigenous businesses may have failed. Many of them might have fallen over in the funding negotiation process. But critical problem is, as Bill Moss has correctly identified in his paper, that none of the Indigenous business people will get a chance to test their ideas. In our work we would almost always reward the business ideas that presented at our trading floors with whatever funds we could muster. This usually took the form of a small $1000 micro grant to help develop the business to a first stage of assessment. We then encouraged businesses to come back to with more developed work so that we could take the process one step higher. But only the mining companies and individual entrepreneurs would back us in making these small grants. The idea of doing trading floors soured because we knew that there would be many more business ideas than could be funded to even this first stage development. In the Indigenous world where there have been so many enterprises and people who have failed to deliver anything more than false hope we did not want to go into any community unless we could support the people who came forward.

On the basis of the 150 businesses and entrepreneurs that came forward in four regional and remote communities for the ISX we could start to profile the businesses and people that would emerge. 60 per cent would be small owner operated micro-businesses. 30 per cent would be about making currently dependent community businesses into full or partial social businesses with a profitable income stream reducing the dependency on stop-go Federal and State government funding. 5-10 per cent would involve large small and medium sized business that had strong commercial potential.

Who supported these Indigenous businesses? It was not the institutionalized investment community seeking 20 per cent returns per annum and a five year divestment exit because such deals, even when potential existed, require a long time and a lot of resources to come off. It was not the IBA or the ILC who often cloned their non-Indigenous counterparts arguments and berated Indigenous business people to impossibly mirror successful entrepreneurs from the commercial world.  It was not the banks. Sometimes entrepreneurs with little more to offer than a small sum of money and some ideas came forward wanting to support businesses. Personalities had to be compatible for this to be successful. Nic Francis’ social entrepreneurial legacy at the Brotherhood of St Laurence in Melbourne meant we got strong support there. The Sydney legal firm Gilbert and Tobin never ever let us down once in what we were doing. The mining companies were great because I think the culture of understanding that you have to substantially invest in a new mine site transferred to their concept of what had to be done in Indigenous business development. But mostly it was Gerhardt Pearson, Kevin Fong, Marcia Langton, Paul Briggs, Barry Taylor, Teik Oh and myself, working with the support of other Indigenous leaders, on a voluntary basis, trying to negotiate forms of philanthropic, business and  government capital that would create a pathway forward for Indigenous business people. A thankless task akin to fitting square pegs in round holes that took a heavy toll on our time and energy levels. That important task continues through the BAMA ISX.

Bill Moss’s paper and proposition is very welcome. It will help a great deal. It correctly argues that we need more fluid, dynamic and risk-ready investment capital for Indigenous Australia. But we must also attack this general problem of passive capitalism as aggressively as we have attacked the problem of passive welfare. This requires development and leadership from many angles. Above all we must encourage our existing businesses to be in the business of creating new business opportunities in Indigenous regions and localities. This currently requires, as the exemplary work of Moss shows, a dedication above and beyond business as usual.