It is the abiding paradox of South Africa’s economy: in the depths of last year’s brutal recession a million people were thrown out of work and yet wages and prices rose sharply in defiance of basic economics.
Where people are struggling to keep their jobs, they should have reduced bargaining power and settle for lower wage increases. At the same time, when consumers have less money to spend — perhaps because they don’t get a pay cheque any more — companies should have less pricing power and inflation should be sharply reduced.
Not so in the land where political economics weigh heavier than the demand curve and where monopolistic capital lords it over consumers.The paradox is only deepening.
As the Mail & Guardian went to press, the parastatal logistics giant Transnet was about to settle with workers for an increase somewhere north of 11% — double the current rate of inflation. No doubt that will provoke sighs of relief all around, but it shouldn’t.
As an opening figure around which the rest of strike season will revolve, 11% is a staggeringly high number, and unions — including the representatives of public servants — are asking for 15%.
The consequences are clear. For starters, there is inflation. Companies — especially those with limited competition — will recoup the higher wage costs by charging higher prices, and better-paid workers will be prepared to pay more for goods and services. Of course, those price rises will quickly erode the real income gains that come with a higher salary.
Dramatically increased wage costs will take a toll on the national accounts too. South Africa’s budget deficit, at 7%, looks fairly healthy compared with some of the eurozone figures, but it still means sharply higher debt service costs — money that can’t go to service delivery. The balance between spending on salaries and spending on capital (infrastructure, in particular) also gets thrown out of whack. Higher inflation, and increased government debt, means higher interest rates, slower economic growth and slower job creation.
Stagflation is a Seventies word, but it feels like a very South African condition in the 21st century.
Two things make it possible for the price of goods and services, and the price of labour, to defy economic gravity: the political power of the trade union movement and a highly concentrated business sector where the excellent work of the competition authorities has only begun to have an impact.
That means, among other things, that we must not expect a solution to come from simple economics. We need a settlement between business, labour and the state, of the kind that has kept Germany’s economy the healthiest in Europe.
Workers must accept wage increases much closer to the rate of inflation. Companies must protect jobs in return and the state must impose price discipline through monetary policy and competition law enforcement.
Sharing the responsibility, we might get through the mess in better shape than we started, with a new understanding of what “shared growth” means.
It is the kind of task that the tripartite alliance was made for — but that potential is being squandered on the defence of political fiefdoms. Time for some real courage in Cosatu House, the Union Buildings and the boardrooms.
Rappelling the enemy?
Security worries are up there with the price of long-haul flights as a deterrent to potential World Cup visitors. Crime is probably their biggest worry, but the threat of terrorists using the event to stage their next “spectacular” is what exercises the minds of the global intelligence community.
It is crucial that the government should offer public reassurance, but what really matters is that it gets the details right behind the scenes. Expensive television advertisements showing “General” Bheki Cele marching down the street in a solemn salute are not likely to deter bomb-makers or even muggers. Neither will crack squads rappelling down Sandton buildings strike fear into the hearts of jihadis who might see South Africa as a convenient platform for attacks on the Western powers whose teams and fans will be here.
That is why we should not summarily dismiss the story coming out of Iraq about a captured al-Qaeda operative who claims he has been awaiting approval from his superiors to carry out an attack on the Danish and the Dutch during the tournament.
Just last week Eyewitness News tested airport security measures and found them wanting. Their staff were able to board flights with knives, syringes, screwdrivers, scissors and razor blades. In Parliament this week it was revealed that there are negligible security plans for the fan parks where thousands will gather to watch the football on big screens. And it was enormously embarrassing when German press agency DPA informed us about the Iraqi threats.
Our intelligence service was caught napping during the xenophobic attacks and we have to wonder: do they have a plan this time around? We know there are plenty of international spooks sniffing around, and they seem to be cautiously optimistic. But we would like President Jacob Zuma and his security cluster to give us rather more concrete reassurances that Cele’s gold-braided bluster is not our only backstop. Moe Shaik, perhaps, could lend a hand.