It ain't over till it's over

The African National Congress’s new discussion document is just that: a statement of ideas as a basis for contestation. As such, it provides a welcome opening for discussion of development strategies across the democratic movement.

Unfortunately, the business press in particular has rushed to welcome selected proposals as a done deal. Yet, as the April seminar on labour laws convened by the ANC Economic Transformation Committee underscored, this is a genuine effort to open up debates, and certainly should not be read as the ANC’s final position.

The document is premised on the argument that the economy is structurally divided into two—the “first” economy, essentially the formal sector, and a “second” economy that effectively comprises everyone marginalised from the formal sector.
This view prompts two important observations:

• Growth in the formal sector has not led to substantial improvements for the “second” economy—the unemployed, the informal sector and subsistence farmers in the former “homeland” areas.

• The market, by itself, will not overcome this dualism and the state must intervene to ensure shared growth.

While these arguments are well founded, they downplay the unequal impact of growth within the formal sector itself. Analysis of the government’s Labourforce Survey shows that for the past decade, the percentage of formal workers earning under R1 000 a month in nominal terms has remained static at 25%—while the real value of R1 000 has dropped by over half. In the same period, the share of labour, as a whole in the national income, dropped from 51% to 46%, while the share of profits climbed from 26% to 31%.

Tackling this persistent dualism requires a systematic analysis of the relationship between the formal sector and the marginalised.

Unfortunately, the discussion document implies that these two groups simply co-exist. It repeatedly praises the dynamism and growth of the formal sector, as if it had nothing to do with exclusion and inequality.

In the event, the formal sector and the poor are inextricably linked. The marginalised groupings rely on the formal sector for income transfers from families and the state, for the goods and services they consume, and for markets. For its part, the formal sector historically looked to impoverished Africans for cheap labour.

The central problem is that for at least the past 20 years, the formal sector’s need for workers has declined and employment growth has been far slower than the growth in population.

In the past two years, construction and retail have created more jobs, albeit poorly paid and casual. Still, employment is rising only about half as fast as needed to reach the target of halving unemployment by 2014.

It follows that more equitable economic growth requires accelerated employment creation in the formal sector, which in turn requires a conscious effort to encourage more labour-intensive sectors, such as light manufacturing and services. It also requires programmes to equip economically marginalised people with the means to earn their own livelihoods—through land reform, social grants, provision of infrastructure and credit, and education and training.

Unfortunately, while the discussion document emphasises dualism, it does not analyse its roots. As a result, its proposals remain quite unfocused. They centre on increasing state resources for infrastructure, health and education, small enterprises and cooperatives, and production. These programmes are already under way and are certainly worthwhile. But, they will not, in themselves, shift the formal sector towards activities that can do more to create sustainable employment. That would require a review of specific industries to identify activities that could accelerate employment creation and small enterprise growth.

The document also proposes measures to reduce the cost of capital and labour. It gives no apparent thought to attempts to ensure that increased investment, in particular, flows toward activities that can create employment on a larger scale.

The proposals on labour are provocative, as they centre on exempting some groups from labour laws. One cannot take them too seriously, however, because discussions with both the government and the ANC indicate they are not likely to be pursued in this form. Imposing weaker labour laws will involve a costly political fight, while the economic and social benefits are, at best, dubious.

The proposals on the labour market have virtually no basis in reality. South Africa’s laws are no more rigid than those in most of Latin America, where unemployment rates run at around a third of ours.

Similarly, employment in the virtually unregulated informal sector remained virtually stagnant between 2000 and 2004, according to the Labourforce Survey.

Given this experience, it seems unlikely that deregulation would accelerate job creation elsewhere in the economy.

A more effective way to cut the cost of labour would be to examine factors behind the high cost of living, like transport, which for many workers absorbs well over 10% of income; housing and municipal services and education fees.

The ANC’s discussion document on development will hopefully stimulate policy debates. But, it is not realistic to think that dualism can be overcome only through social poverty programmes, better infrastructure and weaker labour laws.

We must explore why the formal sector, for all its high technology and competitiveness, still does not provide worthwhile economic opportunities for so many South Africans.

Neva Makgetla, Cosatu’s chief economist, writes in her personal capacity