It’s simple: increases in productivity must come before higher increases in wages, argues Reg Rumney
JAPANESE productivity expert Professor Anatole Goshi tells a wry story to emphasise the importance of productivity growth.
An American and a Japanese tourist were on a walking safari in one of our game parks when they spotted a lion in the distance. Immediately, the Japanese man kicked off his walking boots, threw off his rucksack, took out a pair of running shoes and started to put them on.
“Why are you doing that?” asked the surprised American. “You’ll never be able to outrun a lion.”
“I don’t have to,” his companion replied. “I only have to outrun you.”
Perhaps it’s an old joke, but the point made is notable in the light of several recent developments which have thrown the spotlight on South Africa’s productivity, which could be perhaps defined as producing more for less.
These are:
* The countrywide wave of strikes, raising questions about the role of labour in the economy in the new South Africa.
* South Africa’s poor showing in the annual World Competitiveness Report, which rates nations’ productivity. South Africa is rated 11th out of 18 non-Organisation for Economic Co-operation and Development Countries.
Goshi was in town this week with two other productivity experts for the National Productivity Institute annual awards.
Much press coverage has been given to figures which purport to show the poor productivity of labour in the past month. In its defence, the union movement has argued that this is deceptive. The average wage rates of countries, the argument goes, conceals big gaps between blue-collar and white-collar workers. Statistics are hard to come by for actual blue- collar wages, and the union feeling is that management wants First World wages for itself and Third World wages for labour.
As Goshi’s story serves to illustrate, where South African productivity or wages stand in relation to, say, Korea does not matter that much in itself. National Productivity Institute executive director Jan Visser puts it this way: “It is the rate of change of growth that is most important.”
Where does one start, however?
Labour has flatly rejected the low-wage growth path for the South African economy, aiming instead at a high-wage, high-productivity economy.
Cosatu’s Neil Coleman, for instance, writing in The Star, says: “The Asian and other experiences show that in rapidly growing economies, productivity growth does not always outstrip wage growth. In fact, higher wages have sometimes been a stimulus to raise the level of productivity.”
The productivity experts were emphatic about one thing this week: you have to have a bigger cake before you can share it out.
High productivity packaged with good distribution of wealth policy is the best means of alleviating poverty, says the International Labour Organisation’s Joseph Prkopenko. “At the same time it is important not to confuse priorities: first is productivity and second is distribution.”
One of those successful “little tigers” that both labour and conservative economists are fond of citing in defence of their ideas is Singapore, second only to the United States in competitiveness, as rated by the World Competitiveness Report this week.
Singaporean National Productivity Board director Koh Juan Kiat stresses that wage growth must lag productivity growth. In a paper he delivered on productivity this week he went further, describing Singapore’s version of tripartism: consensus between labour, government and business.
“The flexible wage system reflects mutual trust among the unions, employers and government,” he said. “Instituted in 1986, the flexible wage system is based on the concept that total wage increases should be tied to company performance, with built- in wage increases lagging behind productivity growth. Firms performing well should reward employees with higher variable bonuses but are not pressured to increase wages during downturns.
“With such a system, workers would have a direct interest in the profitability of the firm. For civil servants, their bonus depends on the economic performance of the country. The flexible wage system is now instituted in over 70 percent of non- unionised companies and 85 percent of unionised companies in Singapore.”
Among the productivity experts there is no mention of using high wages to spur productivity, but much emphasis on the eventual benefit of productivity for employees.
There are a number of other factors which contribute to productivity growth, and there seems to be general agreement on the importance of education and training to create a skilled and flexible workforce. Visser stresses that a national will to win the productivity race is essential.
Demonisation of the unions is not part of productivity experts’ vocabulary, but then again in places like Singapore the unions are expected to play the game.
Take Singaporean Prime Minister Lee Kuan Yew’s 1979 pronouncement, quoted in the NPI’s most recent Productivity SA: “…if the union leadership challenges the political leadership, political leaders must triumph, if necessary by changing the ground rules to thwart the challenge, using legislative and administrative powers, and, when necessary, backed by the mandate of the electorate.”