‘Wage restraint’ won’t help the jobless

Government’s new growth path calls for a social pact that includes proposed wage restraint, which means workers would moderate their wage demands. Various monetary policy statements by the Reserve Bank, research reports by Adcorp and other comments by mainstream economists support this gospel truth: high wages mean fewer people will be employed. The Mail & Guardian has taken this line too (“The great carve-up“, July 22).

The policy prescriptions of mainstream economic orthodoxy have no foundation in empirical evidence. Leading development economists and economic historians such as Alice Amsden, Thandika Mkandawire, Hajoon Chang, Eric Reinert, Jomo Sundaram, Ben Fine and many others have shown how developed countries use higher wages to create sustained expansion of demand. Henry Ford even decided to double the wages of his employees so there would be effective demand for the cars produced by his company.

In South Africa’s case Chris Malikane’s models show that higher wages mean sustained and stable aggregate levels of demand.

Such demand would contribute to sustained fixed capital investment and job creation, thus providing a sound basis for investment in long-term productive assets. In addition, if these demand levels are stable, stable cash flow to businesses and hence stable investment growth rates would be guaranteed. Lower wages mean low levels of aggregate demand, which in turn mean depressed production and therefore fewer people employed.

Mainstream economic orthodoxy can’t explain what causes unemployment and what will ultimately create jobs. Wits economist Seeraj Mohammed has consistently shown that South Africa’s unemployment crisis is structural, insofar as the capital-intensive minerals and energy sectors dominate and shape productive sectors. This shows how unemployment is systemically rooted in apartheid under development.

Mohammed has also shown that the global restructuring of production and the increasing inability of capitalism to absorb working-age people into formal employment are crucial systemic causes of unemployment.

The post-apartheid restructuring of companies and the economy as a whole, says Mohammed, led to growth in the services sector, which has not created large numbers of jobs. This restructuring also enabled huge volumes of capital, previously locked in the economy, to flow offshore and into financial rather than productive assets. For example, from 1992 to 2007 South African corporations chose to keep their capital liquid in financial markets rather than invest in production. Such decisions limit employment opportunities.

The 2003 growth and development summit bemoaned the fact that, for the 1994-2003 period, the average level of investment remained below 25% of GDP — the minimum level historically proved to provide enough capital to drive productive, employment-creating growth. More than any other factor, it is this investment strike by capital that has caused employment creation to stagnate.

The economists cited above show how job-creating economic development has taken place in the leading developed countries. In essence, it required what is today referred to as state-led industrial policy: sustained interventions to drive sectoral growth and development. In the case of East Asia these typically included the deployment of incentives and penalties to mobilise and direct investment behind a carefully defined state-led strategy to develop productive forces. These measures were primarily focused on manufacturing, but also incorporated productive activities in agriculture, mining and other sectors and were broader than a “competitiveness strategy”.

The proposals of the industrial policy action plan and the new growth path go some way towards a framework for industrial policy. Yet neoliberal prescriptions still dominate government’s economic policy. There is insufficient political power or will to build a development coalition that can drive restructuring towards job-creating growth.

Many now argue that globalisation has changed the game — that, now, such industrial policy measures are obsolete. But globalisation has lost more jobs than it has created. The countries that have witnessed their economies grow while also creating jobs — Brazil, China, India and Russia — are all characterised by state-led industrial policy. In light of historical experience and that of the aforementioned Bric countries, I would argue that such policy has the potential to address the needs and interests of the unemployed in a way wage restraint cannot.

Nonetheless, industrial policy will come up against ecological limits, given the expansionist logic of capitalism in spite of finite resources. Thus the challenge for an ecologically sustainable industrial policy will be to work out options that shift the economy towards a low-carbon base. This implies a break from the domination of our key productive sectors by minerals and energy.

In addition to interventions in productive sectors, important measures to address the interests and needs of the unemployed must include a comprehensive social wage. This would provide adequate assets and a living income for all unemployed. Government already recognises this: there has been a massive expansion of social security, there is policy commitment to provide universal free basic services and programmes to distribute assets to the unemployed.

The social-security system now in place is extremely limited. It does not overcome the systemic restraints of poverty, inequality and unemployment. The challenge of developing a comprehensive social wage must therefore be about providing livelihood opportunities as part of an overarching sustainable, job-creating economic development path. Key here is the building of self-sustainable communities and local economies, including the stimulation of local consumption and trade.

Brazil’s provision of a minimum income to all unemployed fathers has shown the potential of such a scheme: it has begun to stimulate local economies in poor communities. Indian economist Kaustav Barnejee has shown that India’s rural employment guarantee scheme has had similar effects.

By providing 100 days a year of guaranteed wage employment to every household for unskilled manual work, the scheme has led to an aggregate increase in the minimum income earned by the rural poor in India. This in turn has generated upward pressure on agricultural wages.

It is possible for government to keep to the anti-poor, neoliberal policy package because the social weight and voice of the unemployed is absent. This absence has opened the door to a holier-than-thou appropriation of the unemployed by economic orthodoxy. It is nauseating to witness the Reserve Bank and mainstream economic orthodoxy speak for them, presenting wage restraint as the way to address their interests. Building the unemployed into a force to challenge government and business remains a huge political challenge not yet addressed by any social formation.

Mazibuko Jara is a co-founder of the Democratic Left Front

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