Sweatshops are not the solution

Workers are “fenced in” at a garment and textile factory in the Athi River export processing zone (EPZ) in Kenya. They earn less than $2 a day, work long hours for

25 days each month, and are not allowed to join a trade union.

Factory managers sexually harass members of the 80% female workforce, hired because they are considered submissive.
The company makes large profits exporting to the United States, though little of this stays in Kenya.

In January, after years of abuse, thousands of workers demonstrated for better wages and working conditions. This turned into a wildcat strike that resulted in a two-day closure of all 16 EPZ factories. Riot police were brought in to put down the strike.

Such export zones are what the Democratic Alliance’s Raenette Taljaard would like introduced in South Africa (“SA must enter this no-go zone”, April 11).

The DA believes “real” EPZs, including exemption from labour laws, are the answer to job creation. So armed, South Africa can “lure foreign investors” in the “race for jobs” against workers in Vietnam, India, China, Bangladesh, Pakistan and Sri Lanka.

It is incredible that lower protections are seriously punted as a solution for the most vulnerable. This “race to the bottom” is framed as being in the best interests of the unskilled and unemployed—invariably blacks and women.

Black South Africans already know something about EPZ-style labour relations. It was called apartheid.

As the 1996 Presidential Labour Market Commission noted, the labour market was the “centrepiece of apartheid”. Black workers were not allowed to join registered unions and had little protection against abuse, while even their right to reside in “white” cities depended on submissive behaviour at work.

There can be no apology for scrapping apartheid labour relations, regardless of the “hassles” some employers may have experienced in adjusting.

The DA says the post-1994 labour laws are “stifling”. It adds: “Confront any of the jobless South Africans with a simple option of no job or a job in the EPZ—how would they choose?” The DA thus presents the unemployed with an insidious “choice”—starvation or chattel slavery.

One would have thought a middle-income, industrialised country like South Africa, with a R1,1-trillion gross domestic product and a democratic government, would accommodate a wider range of choices.

Taljaard says South Africa’s high unemployment flows from a technical “skills mismatch” and the existence of an “employed labour aristocracy”. It is a strange “aristocracy” where 35% earn below the poverty line. Moreover, surveys of employers ranking different factors affecting investment and job creation rank unions and labour regulations below economic growth, stability, consumer demand and interest rates.

The real causes of high unemployment lie deep in the structure of the economy and its management. They include the structural decline in important primary industries such as gold mining and agriculture; years of capital-intensive production subsidies; the consequences of rising import penetration as a result of South Africa’s integration in the global economy; falling public sector investment, contributing to falling private investment; large outflows of domestic capital; and extreme inequality in the distribution of assets, including skills and incomes.

EPZs will not resolve these structural problems. First, they do not necessarily create many jobs. In countries with EPZs, their share of employment is rarely above 1,5% of all jobs. Much of the “new” employment is a relocation of existing jobs. In Mexico, for example, EPZ employment increased by 10%, whereas employment outside the zones fell 9%. In Namibia, four years of heavily subsidised EPZ development resulted in a paltry 400 new jobs.

Second, EPZs do not necessarily result in technology transfer, local economic development or skills development. Successful technology transfers would mean increased competition from indigenous firms, and this is not in the interests of EPZ employers.

The International Labour Organisation finds EPZ firms have fewer backward linkages to the host economy than conventional companies. This is hardly surprising given the high-import content of EPZ products, usually up to 60% of the product’s value.

One cannot build a high-skill economy on the basis of sweatshops. If a firm does not think that it can build skills within the context of South Africa’s bargaining councils—where many applications for exemptions are granted—or current Department of Trade and Industry initiatives, it will hardly do so an EPZ sweatshop.

Third, EPZ incentives and subsidies are very costly and inefficient, and can cause major distortions in the domestic economy. Countries find that the cost of EPZ incentives and subsidies can become unsustainable when the economy is not growing fast enough. Indonesia, for example, recently suspended its EPZ subsidies and incentives because they became too costly.

EPZs also require complex administration to manage the adverse consequences. For example, firms in India’s zones often use up the five-year tax holidays, close shop, then reopen with a new name in the zone. The cost of these state incentives must be borne by firms outside the EPZ, creating further distortions in the domestic economy.

Fourthly, it is standard practice for EPZs to violate core labour standards and basic human rights. Even in those instances where governments do not formally exempt the zones from labour laws, the laws are not enforced.

To cap it all, the DA proposal misses an obvious but crushing point. This was made by the World Bank, which stated that (unlike Mauritius in the 1970s), “in South Africa, there is already a well-developed industrial sector and domestic investment is more important that foreign investment. Therefore EPZs are not the

preferred solution.”

Indeed, a study on globalisation and developing countries by renowned Harvard economist Dani Rodrik concluded: “The role of exports in developing countries is vastly overstated.” Rather, the mobilisation of investment and domestic resources was the route for successful economies — including South Korea, Mauritius, and Singapore — that went on to experience faster economic growth and exports. In this, “the state must take major responsibility”.

Successful economies also embarked on significant asset distribution, to maximise popular participation.

The DA opposes state intervention in the economy, particularly if it results in distribution of wealth and power to the poor. This is its “no-go zone” in economic debate. It proposes that starvation wages and apartheid labour relations should be South Africa’s comparative advantage. But then, what does one expect of the party that campaigns to “fight back” (against transformation)?

EPZs do not form the basis of a viable growth and employment strategy for South Africa. And the sooner we focus on the real issues, the better.

Ravi Naidoo is director of the National Labour and Economic Development Institute

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