Better wages are good for the economy

Higher wages for South African workers cannot be justified. That is the only conclusion to be drawn from the media onslaught suggesting that unions are in the dark ages, demanding wage increases above both inflation and productivity. Yet some editors have admitted that employers are also losing the moral high ground.

PricewaterhouseCoopers revealed that top managers have been granting themselves appallingly high salary increases — again.

Contrary to the propaganda, that is just the tip of the iceberg. If we turn to the issue of profit versus wage share in the national income and the nature and direction of investment, a powerful argument can and should be made for dramatic wage increases.

In the past several years (and gross domestic product statistics are indisputable here) big business has come to control an ever larger part of the national income at the expense of wages. That South African chief executives drown themselves with 23% salary increases plus bonuses is only a symptom of that deeper trend.

In this year’s People’s Budget Campaign, its members — the South African Council of Churches, the South African National NGO Coalition and the Congress of South African Trade Unions — produced a diagram showing wage development. What it shows is crucial: a deep drop in wage share in the national income.

By 2008 wage share had fallen to below 47% of GDP. Both wages and profits are, of course, taxed and some profits used for real investment. But the wage share of the national income is spread among millions, while a large part of the profit share goes to a small fraction of the population, in South Africa and abroad.

There is virtually no discussion of obscene profit levels.

According to those who rail against wage demands way above inflation, there is no limit on how high profit should be. For example, Business Day (July 26) notes that De Beers reported dramatically increased profit for the past six months: profit before finance charges and tax was $1.02-billion, up 74%.

Technological advances
Economist Dawie Roodt of the Efficient Group opined in the Mail & Guardian (July 22) that the decrease in wage share is a result of technological advances.

Well, we have seen quite a lot of technological advancement in the last 250 years. If this were a plausible explanation, the wage share of national income all over the world would have long ago reached zero and in the highly industrialised countries, at least, the whole national income would simply have been handed to the owners of the machines as profit.

But, as we see in the graph showing wage share in value added, the wage share of national incomes in the north is stubbornly 15% to 20% higher than that in South Africa.

The reason for the difference is the economic legacy of apartheid and colonialism, which is evidently gaining force, not fading away. How to divide the national income into profit and wages is indeed a contested political matter. For the business elite, as in the “export-led growth” paradigm, wages can never be low enough.

This raises the question: Who will buy what the business elite is selling?

The main motor of growth in South Africa is to sell produce abroad, isn’t it? But what if there are recurring global crises? Or if all governments support their business elites in the same endeavour of grabbing an ever larger part of national income as profit, believing in an “export-led growth path” just like South Africa?

French economist Michel Husson recently published telling research showing higher profit at the expense of wages for a cluster of the biggest economies in the world. This is a prominent feature of neoliberalism, with tax cuts for the rich and for corporations.

The international cheap-labour race to the bottom has several facets. Among other things, it provokes a crisis of effective demand: too few people able to purchase the goods and services on sale.

In South Africa we have higher household debt than before and globally, the phenomenon of reckless credit extension has been a desperate attempt to overcome the crisis of demand. It provoked the financial crisis, including the sovereign-debt crisis now gripping the north.

As I write, gold mining workers are preparing to strike. The employer has offered 5% to 5.5%, which the National Union of Mineworkers has labelled pitiful and racist. Is a wage demand of 14% or 15% in the mining industry unreasonable?

Consider what has taken place in mining in the past 10 years. The fall in wage share in mining is large. Had wage share been constant over the period, mine workers would have received about R100-billion more in wages.

Worker-bashers argue that that would be bad for investment. But examine the statistics and the reality of the situation becomes clearer. According to the Reserve Bank, “fixed capital formation” for 2002-2010 is a meagre R331-billion of the total R815-billion in profits reinvested. Judging by tax statistics for 2006 and 2007, about 16% to 18% of the R815-billion in profits is deducted in taxes.

There remains well over R300-billion — the income of a small elite, circulated in speculation. Tens of billions of rands in higher wages each year, therefore, would not have had any objective impact on mining investment, yet a breadwinner must pay for food, services such as electricity, transport and of course, basic semi-durable goods.

Wages in South Africa are too low to support a decent livelihood or to develop a diversified local economy.

In the economy as a whole over the 2001-2010 period more than R480-billion was made in extraordinary profits, yet the wage share fell.

A recent study (Ashman, Fine and Newman) concludes that 5% to 20% of GDP in “unrecorded capital flows” (illicit, not accounted for) has left South Africa every year since 2000. Had the wage share of GDP been stable at the 2000 level, millions of working-class families would have been lifted out of poverty with ­thousands of rands more to spend each month.

Limitless capital for big business is bad for the economy. Unlike wages, it is not spent (except for a small proportion) buying the goods and services produced here. The capital-wage relationship leaves the vast majority too poor to provide a base for diversifying our economy or building the industries we so desperately need to end mass unemployment.

Profit is too high, wages are too low — and the vast majority of employers flaunt the regulations required to redress these wrongs.

Dr Dick Forslund is a researcher and economist at the Alternative Information and Development Centre in Cape Town. He writes for Amandla! magazine

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Dick Forslund
Dick Forslund is senior economist at the Alternative Information and Development Centre in Cape Town

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