/ 12 December 2016

A national minimum wage is a powerful tool to break the poverty cycle

Residents of Rio de Janeiro's favelas say they are paying the price for the developments that were made in the Brazilian capital ahead of the Olympics.
Residents of Rio de Janeiro's favelas say they are paying the price for the developments that were made in the Brazilian capital ahead of the Olympics.

Levels of poverty and inequality in South Africa are unacceptably high, whether from a perspective of economic sustainability, social justice, or adherence to the Constitutional imperative of dignity and equality before the law for all.

It has been a bit of a bad news period for poverty and inequality. On November 21, Statistics South Africa advised that unemployment has continued to grow and is currently the highest it has been since 2003, and that includes the worst spikes of the global financial crisis period. Also on the 21st was the launch of the Children’s Institute’s SA Child Gauge, which indicates that 63% of children live below a minimalist monthly poverty line.

Our national economic growth forecasts suggest that there is no hope in hell of us being able to achieve the targets for eliminating poverty, reducing inequality and bringing unemployment down to a more manageable 6% by 2030 as set out in the National Development Plan.

A bad news week thus for the poor and hungry South Africans marginalised from the dividends of our democratic dream.

Or was it?

Catching the nation by storm was the recommendation publicised on Sunday November 20 2016 by the Deputy President through the auspices of Nedlac. This recommendation came from an expert advisory panel that he appointed as part of the National Minimum Wage negotiations that have been stuck in Nedlac for over 2 years.

The negotiations between government, organised business, organised labour and the community constituency have been characterised by deadlocks from the outset. The critical point of contention was that whilst labour and community constituency viewed the Ekurhuleni Declaration (the declaration signed by all social partners in November 2014 which committed to the adoption of a national minimum wage) as signifying a radical departure from the apartheid era wage policy for low-skilled workers in South Africa, this sentiment was not at the time shared by business or government who seemed to view it rather as a wage dampener exercise.

Community constituency and labour were also adamant from the outset of negotiations that any sustainable policy intervention had to include a reform to social security provisions. Although access to social security is a Constitutional right, no provision for social assistance for working age poor people exists within South African law. This means that for poor households, the benefit of the monthly R360 child support grant or the R1 510 Old Age pension is spread thinly amongst the whole household.

Brazil and South Africa shared the dubious dishonour of being of the world’s most unequal countries in terms of income inequality until about five years ago, when in 2007 Brazil’s then-governing Worker’s Party made an explicit policy commitment to use the National Minimum Wage (NMW) as a tool to address poverty, inequality and economic growth. Combined with the massive expansion of their social assistance programme – the famous Bolsa Familia system of cash grants – the very deliberate use of their NMW to break the poverty and inequality barriers led to a sustained reduction in their levels of poverty and inequality and promoted economic growth. Dire warnings by embedded business people of the sure loss of jobs were never realised. Neither did those similar predictions come true in Germany when they adopted a meaningful NMW in 2015.

As optimistic as kindly-hearted policy makers in government might be about trying to meet the needs of all South Africans, the facts clearly demonstrate that this is not working. The very principles of transformation that are contained in our Constitution make a mockery of millions of peoples’ daily reality.

On November 20, the proposal for a NMW of R3 500 per worker per month – a floor below which no worker should fall – was tabled. On November 25 we anticipated the tabling by the Minister of Social Development the long awaited (about 7 years in the waiting) discussion document on comprehensive social security, also to be tabled in Nedlac.

Econometric modelling across both developing and developed countries consistently demonstrate the feasibility of economic upturns through bottom up economic growth driven by income redistribution. Since the adoption of Gear in 1996, South Africans have waited for the promised poverty alleviation and economic growth that has not only failed to materialise but in many cases these have worsened.

In 2015, South Africa ratified the UN International Covenant on Economic, Social and Cultural Rights. This covenant includes the right to an adequate standard of living. Our National Development Plan also aspires to the realisation of a decent standard of living for all in South Africa by 2030.

Radical change can be scary, but possibly not as scary as not doing anything in the destructive chaos of crisis. We trust that national leadership will have the vision and the courage to embrace and enhance these opportunities for change. It might be for the immediate digestion by the ratings agencies, but the gap should also be taken for the benefit in the medium to longer term of the nation.

Isobel Frye is the director of the Studies in Poverty and Inequality Institute