Good Ship Zuma is floundering
The ANC kicked off 2011 in confident mode, its president Jacob Zuma declaring to a packed stadium in Polokwane that this year would be the one when job creation would be tackled in earnest.
I have this image of him as ship’s captain, his sleeves rolled up, ready to get on with the job. He presides over a big ship, one which has got significantly bigger during the ANC’s period of stewardship of the economy. The R800-billion a year economy the ANC inherited in 1994 now turns R2.2-trillion a year, a 2,5 times increase.
It will get much bigger. PricewaterhouseCoopers (PwC) , in a report released last week, predicted that South Africa as a resource-rich emerging market will be the seventh-fastest-growing economy in the world to 2050.
This is champagne cork-popping stuff, but masks a deeper, underlying problem. That is, that although it is much larger the economy has about the same number of people in formal employment as it did in the late 1980s.
Zuma may be captain of a big ship, but in a job sense, the vessel is under water. Zuma’s sleeves-rolled-up speech was endorsed by the ANC’s national executive committee. It and the Cabinet have been deliberating on the new jobs programme since then. Asked at a press conference for details, Zuma said that it was the task of the Cabinet to come up with specific job-creation strategies. We await clarity on how the ruling party will fix the jobs problem.
It should be clear, though, that the people who are helping Zuma steer his ship are not of one mind about job creation. This is made most obvious by the attempts in the past two budgets by Finance Minister Pravin Gordhan to implement a wage subsidy to encourage young people into the jobs market.
But in an ANC deeply divided on this and other jobs issues, the youth subsidy programme is yet to find any kind of traction and does not even feature in Economic Development Minister Ebrahim Patel’s new growth path.
‘Power of organised labour’
Gordhan also queried the situation in which 20 000 clothing workers in Newcastle face losing their jobs because the organised industry is able to make its wage agreements binding on non-parties, an example of the power of organised labour in the South African market.
There are warnings that notwithstanding the rhetoric from the Good Ship Zuma, the economy will continue to shed jobs this year. Labour market analyst Adcorp’s Loane Sharp says South Africa’s employment outlook is exceedingly grim. “Businesses remain tentative about their growth prospects. As a result, the retrenchment of permanent workers is likely to continue during 2011 and their substitution by temporary workers is likely to surge.”
Sharp says that last year total remuneration grew 16,8% compared with inflation of 3,5% and labour productivity of 0,4%. He says unemployment is a “natural consequence of excessive wage demands”.
Public and private-sector workers are earning 47,5% and 44% more respectively, after adjusting for inflation, since 1995, says Sharp. But the higher wages have led to fewer workers and greater capital intensity in the economy as businesses have shed workers for machines.
“Substitution of capital for labour rose sharply between 1970 and 2010 and the ease of replacing workers with machines are currently at the highest level in history.”
Sharp blames union power, coupled with business timidity, for the unemployment crisis. “Trade unions are allowed to act as labour cartels by the highest law in the country. As such, collusion to bring about higher wages is an inalienable right for workers.
“The Labour Relations Act (1995) ensures that wage levels can rise, irrespective of an employer’s underlying economic vitality, only with the result that retrenchment (as opposed to, say, wage freezes or reduced benefits) is an inherent outcome of the labour relations system.”
Sharp says employers have typically been offering workers between 5% and 11% when they open wage negotiations, “far above the level justified by labour productivity or the cost of living”.
“Employers in both the private and public sectors have demonstrated a high degree of aversion to industrial action such as strikes and work stoppages, apparently preferring to make quick and easy concessions when wage disputes arise.”
Union power, perhaps at least in part resulting from Cosatu’s position as an alliance partner of the ANC, could explain the timidity of business, but Sharp suggests that organised labour punches above its weight.
He says the workforce has a low participation rate in unions, 20,9% in 2008, while the number of unionised workers has fallen in the past 10 years from 4,3-million to 3,2-million.
This is not due to agency employment: “Rather, young job seekers of all kinds are eschewing collective, organised, centralised, action ‘en grande’ in favour of individualised, personalised engagements in situ, a generational trend that is observed in workplaces around the world.
“South Africa’s trade unions have failed to recognise their own ‘crisis of relevance’, particularly among young, first-time job seekers.”
Zuma did not make reference to labour brokers in his Polokwane speech, but draft law published late last year by new Labour Minister Mildred Oliphant has run into a barrage of criticism from business, which says that if implemented it will result in more job losses.
The Mail & Guardian disclosed last week that Oliphant had released the draft law, even though government’s own advisers warned, as part of a Cabinet-requested regulatory impact assessment, that the new law could be unconstitutional, violate the country’s international obligations and put significant jobs at risk in an already fragile job market.
The draft Bills are intended to regulate atypical employment, the sector which has shown the most growth in recent years. It has come under sustained pressure from organised labour, as employers are seen to be using labour broking or agency employment as a loophole to escape their legal obligations to their employees.
Union critics say that the draft law does not go far enough as it does not outlaw labour broking while business critics say atypical employment is a practice that is both growing and central to modern economies.
Agency employment in South Africa accounts at present for nearly one million jobs, about 10% of the total. Its supporters say it is a R23-billion a year industry that includes seven JSE-listed companies and which has shown its value including in bringing new entrants, notably the young, into the job market.
It is not clear why Oliphant decided to proceed with the draft law after her advisers had pointed out numerous problems with it. But the department of labour’s Thembinkosi Mkapili said this week that the Bills could change substantially before they go to Parliament.
Sharp says the country reached its highest number of formally employed in the late 1980s, which more or less coincides with present numbers.
He says the country’s current employment crisis dates back to the late 1970s when the present labour relations system was established following the Wiehahn commission. Job growth closely tracked the economy until then, but it has lagged since.
Flexible labour regime
The gap between jobs and economic growth widened notably by the Labour Relations Act of 1995 after the new dispensation was brought in by Labour Minister Tito Mboweni. The economy has been on a labour-shedding trajectory, but at the same time has been able to absorb perhaps two or three million Zimbabweans who moved into South Africa.
Sharp says this is an indication of how easily unemployed South Africans could be absorbed under a more flexible labour regime. The employment issue remains among the most contested in South African politics.
Supporters of labour brokers view them as bringing flexibility to an inflexible regime; opponents contend, as did the previous labour minister, that they are no more than human traffickers. One man’s job-creating entrepreneur is another’s trafficker in human misery.
Academics cite World Bank research which shows that the South African market is not over-regulated when compared internationally, but critics such as Sharp counter that this is the case when South Africa is compared with developing economies.
He says a report by the World Economic Forum puts South Africa in the lowest 20 or 30 investment destinations where flexibility, employee/employer conflict, dismissals and productivity-linked pay are concerned.
Considering only the governmental, regulatory, legislative and institutional dimensions of the WEF’s survey, South Africa ranks 134 out of 139 countries (between Burkina Faso and Mauritania). Among the WEF’s 15 most problematic factors for doing business in South Africa, four relate to the labour market, says Sharp.
Depending on which side of this divide you sit on, you can easily believe that the South African labour market is under or over-regulated. Business wants more freedom to hire and fire. Unions want more rules about what business can and cannot do.
In the meantime business is doing the job, running a much, much bigger economy, using machines, not people. But the economic issues are relatively simple; much more difficult is the politics, especially where business-labour issues are associated with inequality linked to race.
This is the central plank of Patel’s new growth path, which wants wage moderation for most workers and pay freezes for bosses, but neither organised business nor labour likes the idea.