Guy Standing sets out the principles for a social accord, labour creation and wage levels
IN recent days there has been much talk about an incomes policy or social accord to help realise the government’s economic growth strategy. It is important to appreciate the rationale for such a policy, and to know what type of policy is feasible in South Africa’s conditions, as well as what should be wanted from it.
Let us begin by considering issues on which there is little need for an incomes policy. In an International Labour Organisation (ILO) review of the South African labour market issued after more than a year of intensive work, we question some influential assertions.
Commentators should stop parroting unproven claims that do a disservice to the country’s economic prospects. The labour market is flexible, in most senses of that overused term. Most workers face employment and income insecurity, while wages at the bottom are low and unprotected by the standards of many countries. To the Jeremiahs who assert otherwise, at least demand the evidence.
Most claiming that economic growth is impeded by an “inflexible labour market” are affluent, and it ill- becomes the privileged to advocate making wages and working conditions of the poor more flexible, unless they are very confident of their evidence. How often do commentators argue for more flexibility for themselves or colleagues?
So, an incomes policy is not yet required to make the labour market more flexible for ordinary workers.
What about labour legislation? It is ironic that some blame the new Labour Relations Act for unemployment and low growth, when it has not come into effect. The Basic Conditions of Employment Act is also mild in its application. Others claim that industrial councils are a source of inflexibility and excessive wages. The trouble is that these cover a small and declining minority of workers, and many of those are covered only partially. Wages are mostly determined within firms.
Talk about “exemptions” is the stuff of after-dinner waffle. Thousands of exemptions are granted by the Department of Labour every year. As for the Wage Board, intended to set wages for those not covered by collective bargaining, it has scarcely functioned for years, and recent wage orders have set minima at about R400 a month, or about the level of the social pension.
There is also little need for an incomes policy to deal with labour laws and collective bargaining. Similarly, the idea that lower wages for job entrants or youths would lower unemployment is misguided. First, it already exists in practice, yet youth unemployment is high. Second, if you lower the relative wage of one group you induce a distorted substitution of that group for others, so that any effect on total employment would be limited. Third, the proposal is a prescription for more regulation, which would be costly and complex.
Although one may be sceptical about labour inflexibility, there is an “image” problem. If you say you have an inflexible labour market often enough, people will believe it even if they have no evidence.
Unfortunately, creating an image abroad is important. South Africa is blessed with many advantages and I for one am convinced that economic growth will be impressive. There are short-term problems, not helped by ill-informed comments on what are teething pains of a new order and by posturing by some in positions of public responsibility.
Social pacts could help, in part, by altering the chemistry of policy dialogue. Ultimately, they are desirable to help improve labour market efficiency and socio-economic equity. And they should help boost employment and community development.
A statutory incomes policy is out of the question, and the business community would be right to be wary about that. Policy should build on the South African capacity for dialogue. Although the National Economic Development and Labour Council (Nedlac) has had a difficult baptism, it must evolve into a co- ordinating body for national negotiations on ways of improving efficiency, equity and industrial democracy.
The main economic challenges facing this country are inequality, unemployment and inefficiency in production. Industries are adjusting to economic liberalisation, which is accentuating insecurity. The Reconstruction and Development Programme has been an uneven process, with recrimination about delivery and co-ordination. And there is fear among economists, this one included, that potential benefits of the rand depreciation could be dissipated unless there is a national agreement to limit price rises in sectors making “windfall” gains and to control costs.
At the national level, one could envisage a National Employment and Development Pact (NEDP), whereby employers, unions and government could make some short- and medium-term “trade-offs”. Quiet diplomacy is needed before the process starts.
Unions might be prepared to negotiate on strikes and efficiency, employers might agree to limit price rises, government might use its leverage to set transparent rules for fiscal redistribution. Here is not the place to set out what should be in the package.
But basic principles are vital. The parties must be clear about objectives, and they must know and agree to the rules of the game before the process is launched. The national agreement should include negotiations over indirect labour costs, which are a worrying aspect of the labour market and a source of inflexibility.
An NEDP could set the framework for lower-level agreements. Thus it could be complemented by sectoral agreements, whereby industrial (bargaining) councils set minimum standards for their sector.
These could be complemented by what might be called Regional Employment and Development Councils (Redacs). There are the beginnings of this in some parts of the country, and they must be nurtured into an integrated strategy.
One appreciates the historical baggage that comes with regionalised policy and the need for national cohesion. Yet the latter could be weakened unless meaningful Redacs were set up.
One lesson from the European Union is that there is much democratic, equity and efficiency sense in the principle of subsidiarity. A potential advantage of regional bodies is that they could bring representatives together who feel an identity with their community. Put bluntly, the local football team is our football team.
Redacs could improve the societal sharing of costs and benefits of adjustment and economic growth. Although individual firms might not like the idea, because it runs against their narrow short-term interest, employers as a group could bring to the bargaining table a willingness to shift some social and development functions from their own preserve to the community, perhaps in return for wage restraint and efforts to raise efficiency from unions, and measures to improve infrastructure by the local authorities. Unless there were a communal bargaining structure such desirable changes would be unlikely.
A localised negotiating process —which may not look glamorous to national politicians or commentators — is the way local labour market adjustments could be co-ordinated. Otherwise one fears that under pressure to cut costs to become “competitive”, firms would abandon social functions, which would wither, while productive efficiency will continue to be stagnant, and there will be a continuing problem of “confidence”, which is disturbingly fragile.
Structured and guided by national agreements, sectoral and regional employment and development pacts could limit co-ordination failure and improve the climate of opinion at home and abroad. We may lament the influence of confidence and credibility in international finance markets, but surely a way of moderating their effect would be to lower the tone of negotiations between employers, unions and the government.
In that spirit, employment and development pacts would address the twin problems of equity and efficiency, to boost growth and employment while reducing the awful inequality that characterises South African society.
Guy Standing, director of labour market policies at the International Labour Organisation, co-ordinated the report Restructuring the Labour Market: The South African Challenge. This article is written in his personal capacity, so views should not be attributed to the ILO