/ 14 June 2013

Wage-driven growth is the answer

In real terms
In real terms

With reports of wage demands in excess of 20%, the upcoming bargaining season — the first in the post-Marikana era – promises to be especially portentous for the country's evolving class relations.

The predictable media onslaught against "irresponsible", "above inflation" demands (as though workers should be happy about getting a little poorer each year) is already in full swing and has drawn pre-emptive support from President Jacob Zuma and Gill Marcus, governor of the Reserve Bank.

But high wage demands are not greedy or reckless – they are a rebellion against two decades of declining livelihoods and a challenge to the economic structures of unequal, profit-led growth.

The view that high wages are bolstering a "labour aristocracy" at the expense of jobs for the rest has become an article of faith in economic journalism but its pervasiveness is better explained by the depth of media bias than by any scientific merit.

In reality, there has been no break with apartheid's low-wage regime. Inequality has ballooned, but this is hardly evident when looking at average Cosatu workers and young new entrants into the work sector. Rather it's the top decile who have seen their fortunes radically diverge from the rest.

Statistics South Africa's household surveys, rather than private data sources, reveal that most workers experienced virtually no improvement in wages during the period 1997 to 2011. The median real wage for a formal sector worker in 2011 was R3 800 (in 2011 prices) – the same as it was in 1997.

On the other hand, the 90th percentile real wage went from R11 670 in 1997 to R15 500 in 2011.

The data shows that the 22.7% increase in the formal sector average wage during the past 15 years was entirely due to increases for the top earners, which is confirmed by many firm-level studies that show South Africa's putative "high wage" distortion to be largely due to bloated salaries for managerial staff.

Widening wage inequality
Moreover, highly skilled workers were the only category to make substantial wage gains – evidence, some suggest, of a premium paid out due to the skills crisis.

Supply and demand have some effect but they give no ultimate explanation of the distribution of value, for which we must look to the struggle of contending classes both as it takes place on the factory floor and in the broader social and political institutions to which it gives rise.

Widening wage inequality represents the failure of the democratic state and the labour movement to dismantle and reverse historically inscribed class disparities.

Key institutional victories in the form of hardened legislation and collective bargaining systems have proved impotent in the face of widespread shifts towards informalised labour and the onslaught of neoliberalism.

As such, labour's share of private sector gross domestic profit (GDP), even when managerial wages are included, has shrunk from about 49% just before apartheid to about 42% today.

Marikana and De Doorns are the social expression of these realities. Their example has the potential to ignite a simmering filament of rage among workers into an open rebellion against the political and labour market institutions that have allowed South African businesses to reach for ever more obscene profits on the backs of workers.

Discomforting claim
According to analysts Brian Kantor and David Holland, South African firms are now among the most profitable in the world, a claim that sits uncomfortably with insistences that business "can't afford" decent wages.

Therefore reports of wage demands of over 20% from Cosatu unions are unsurprising. Unions will either have to align with this social anger or fall victim to it, as the example of the National Union of Mineworkers shows.

The recent melee in Cosatu's boardroom should also be seen in this light. This isn't about the political preferences of the federation's individual leaders – it is about one section of the leadership realising that resentment among the membership will not be dissipated by piecemeal reforms or symbolic actions as long as the macro­economic landscape remains fundamentally skewed against workers.

It's about acknowledging that the government remains intransigent, even on the smaller demands of the federation, such as a scrapping of the youth wage subsidy.

Their opponents refuse to contemplate the confrontation with the ANC that this implies. This would suggest that elite compacts to preserve the privilege of a union bureaucracy without substantive concessions to workers may not succeed, as the very basis of that privilege could be eroded by further splits and resistance from the rank and file.

But the other option – an economic re-engineering that would take on board the demands of the ANC's alliance partners – seems even less likely, as indicated by the national development plan's (NDP) call for a social contract in which workers "accept lower than their" productivity gains would dictate (meaning a further decline in the labour share of GDP).

Sidelining NGP
Cosatu's own discussion document on the NDP strips the progressive varnish to reveal an economic programme which sidelines the industrialisation-driven new growth path (NGP).

In its place, it proposes the same wage compression, export-led growth, this time with an added yearning for Adam Smith's capitalism of the butcher and the candlestick maker — over 90% of the 11-million jobs aimed at are expected to come from small, medium and micro enterprises (SMMEs) concentrated in the service sector.

This is despite convincing research that the service sector's fêted reputation as a driver of employment may have more to do with outsourcing from manufacturing than anything else, and that SMMEs have been net job destroyers.

The ANC's export-led growth has not worked in almost 20 years and the current global crisis makes its prospects even gloomier. Recent evidence of this – the ballooning corporate cash pile resulting from investment decoupling from profits – throws cold water on the social contractism of the NDP.

This is based on an Organisation for Economic Co-operation and Development 2013 country report, which includes Statistics South Africa data.

Any resolution to the crisis not premised on race-to-the-bottom economics will have to engage the notion of wage-led growth advocated by the United Nations Conference on Trade and Development and a number of influential economists.

Creating a wage-led economic regime
In the first place, this entails pro-labour distributional policies – plugging the lacunae in our labour legislation and bolstering unions – to reverse the decline in labour's share of new value creation.

Secondly, it means a thorough ongoing reconstruction of the institutional environment to create a wage-led economic regime, in which capital responds to the growing buying power of workers with productive investment and evolves to compete through innovation rather than wage repression.

Regulating and reforming the financial system to stop capital leaking abroad and instead channelling it to job creating investment is crucial.

The current high wage demands and the growing militancy of which they are an expression, aside from redressing what labour has lost from two decades of neoliberalism, could prove the unworkability of the current economic dispensation.

Labour, if joined to a more far-reaching political movement, perhaps spawned from the more radical sections of Cosatu, could compel a more just economic approach from the government.

Niall Reddy is a researcher at the Alternative Information and Development Centre