Because of the recovery of the economy over the past decade, the need for skilled labour has outstripped supply.
Partly as a result of our employment equity policies, which have sound social objectives, the demand for skilled, black people has outstripped supply many times over.
The result of this skills imbalance is that the salaries of skilled people in South Africa have risen dramatically over the past decade. At the same time, the salaries of middle-level workers have remained flat in real terms. People categorised as highly skilled earned about R9 000 a month in 2002, while people in the category just below them earned just R2 550 a month.
What sort of South Africa do we wish to leave for our children?
Within the black community we have seen a dramatic rise in inequality with skilled people, on average, earning more than 16 times more than the average household income for black people. Between 1995 and 2000 the Gini coefficient for the country (a measure of inequality) has been roughly stable.
However, for African households, the Gini coefficient has worsened from 0,54 in 1995 to 0,57 in 2001, suggesting that inequality within the African community is rising.
If the salaries of one group of people rise faster than the nominal rate of growth in the economy, the income of another group must decline. Growing inequality in society, in the black community in particular, cannot be good for sustainable growth and development.
Amartya Sen won the Nobel Prize for economics because of his work on two fundamental social policy issues. The first of these issues is that countries that spend resources on building human capital have a much more balanced sharing of the fruits of economic success than countries that ignore investing in human capital. The second of his findings is that countries where the gap between rich and poor is narrow grow more sustainable than countries with high levels of inequality.
It is also correct that huge inequalities in the distribution of national income tends to depress the real wages of workers and the number of jobs that can be created. The top 20% of earners in South Africa earn almost half of all the income in the country, while the bottom 20% of earners earn just 4%. This situation must be turned around — and this will only happen if we increase the production of skills while at the same time moderate the excesses in the remuneration of some people.
Unless we bother to engage with these issues now, we will, presumably, be considered careless about the quality of society we leave to the next generation.
The public sector (and I speak from the experience of the National Treasury) finds it very difficult to attract qualified black chartered accountants (CAs) to posts that are crucial to effective financial management. The salaries commanded are simply out of the range of what we can afford.
This is not assisting our economy to grow in a sustainable manner. While high salaries may be good for the insiders, it limits the opportunity for new entrants to break into the labour market. This forms a barrier to entry and further constrains growth on the sector. The whole issue of education, training and salaries of those who qualify needs to be seriously addressed by the profession.
It is critically important to remember that the emergence of black and female accountants is inextricably linked to access to the profession by young black people, specifically women. Looking at the statistics, at the end of July 2004, less than 20% of qualified CAs were women — and black women account for less than 3% of all qualified CAs. These numbers are, in fact, an embarrassment to the profession.
The most obvious hurdle to increasing the numbers of black people entering the profession is the rigour, time and cost of the education process that they must undergo. No one is suggesting for a moment that the standard of education should change, but what can this profession do to help ensure that the numbers of newly qualified black CAs increase year on year?
The first thing would be to ensure that those who are already qualified give something back to the community. This can be in the form of time or financial support to those who are in need of education. Teaching, coaching and mentoring are crucial to ensuring that young people succeed in acquiring the skills and confidence that they need to succeed.
In building a stable and prosperous society, the long-term solution has to be better training and more work opportunities for young people, women in particular. Yes, this is a long-term solution — but in solving the major social divisions we face, we cannot afford to reinforce the huge divides apartheid introduced.
The legacy that centuries of colonial and apartheid education has left is massive underinvestment in human development. To remove this backlog, we have to painstakingly rebuild the culture of learning and teaching, of coaching and mentoring, and of investing in our youth. There are no quick-fix solutions.
The biggest responsibility of educated, accomplished black professionals is to invest in the human capital of young people. This is their role in promoting sustainable economic growth — and it has to be their role if they care about our collective future.
Allow me to cite another perverse consequence of the rapid rise of people with scarce skills in organisations. When people without adequate experience are placed in positions of power and influence simply because they possess the right qualification and are of the right race and gender, the result is massive financial risk for the companies concerned and, in some cases, for the economy as a whole.
This problem has arisen in the public sector, where salaries of senior management in some parastatals approached stratospheric proportions, but profitability continued to decline.
This example highlights a number of issues. The first is that inexperienced people who do not possess the competencies required for a job are given jobs with huge salaries. The problem of job-hopping is evident, where people do not build up a body of expertise or experience, but move on to other jobs on the rationale of ”broadening their scope of work”.
We also need to be mindful of the opportunistic role played by headhunters and the impulses they send into the economy.
Their objective is often to maximise their commission by unrealistic price fixing, without looking at the costs and benefits to the economy in general and the value added by the employment of these highly net-valued individuals, in particular.
Similarly, the reliance we place on remuneration consultants tends to drive up prices segmentally because they are tasked by the firm rather than by the economy. Since neither professional group is correctly tasked, we should not expect them to produce outcomes that are either durable or economically sustainable. For different outcomes, a new paradigm must be designed.
The salary distortions are growing and are unsustainable. While this is not purely a South African phenomenon, we must take special care to stem this tide. According to United States publication Business Week’s annual executive compensation surveys, CEOs of large US companies earned 42 times as much as the average worker in 1980, but 419 times as much in 1998. Is this the value system we seek to import?
Similarly, Ann Crotty, writing in Business Report ( May 27 2004) quoted a study that found that the average worker in South Africa will need to work for 111 years to earn what an executive earns in one year. Is this what we have already imported?
In 2003 Ian Cockerill, CEO of Gold Fields, received a 63% salary increase, Steve Ross of Edcon 36%, FirstRand’s Laurie Dippenaar 25%. This is in the context of inflation of about 6% and a decline in corporate profits in most sectors of the economy. Salaries in the financial services sector lead the pack. Is this sustainable? Is this conducive to long-term growth in our economy?
With salaries of senior people rising this rapidly, where is the link with performance? It is my assertion that — as former president Nelson Mandela said at the recent Steve Biko memorial lecture — this wanton drive to get rich quickly must come to an end if we are to have sustainable economic growth.
Trevor Manuel is the South African Minister of Finance. This is an edited version of his address to the Annual Convention of the Association of Black Accountants of South Africa