/ 3 May 2023

SA’s economic system chews up, spits out workers

Cosatu March 3256 Dv 768x511
Cosatu members march in Johannesburg. (Delwyn Verasamy/M&G)

Last year, President Cyril Ramaphosa was booed and forced to abandon trade union federation Cosatu’s May Day rally, signalling the widening schism between the ANC and its allies in the workers’ movement.

A year on and the president is arguably negotiating an even more strained relationship between his administration and labour, which — like many in South Africa — continues to come to terms with what it means to live and work in a failing state. This as the party Ramaphosa leads comes to grips with the threat this poses to its campaign to retain power.

After five years with Ramaphosa as president, and as capitalism begets crisis upon crisis, the cards workers have been dealt are undeniably worse. The economic system has failed workers and unless our policymakers own up to this and change tack, we are all in for a lot more pain.

Unions reflected on the deteriorating conditions of the working class in their May Day statements.

The Public Servants Association said, “Workers currently have to contend with depressing working and living conditions, various forms of injustice and experience high levels of physical, mental and emotional strain … Workers are demotivated by poor remuneration, increasing demands on their labour and the fact that they do not determine the value of their labour.”

The South African Federation of Trade Unions called our economic conditions unacceptable. “Our society is wracked by terrible realities, as the economic system chews up our workers and communities,” the federation said.

It’s important to spell out these conditions. 

In the fourth quarter of 2022, the expanded unemployment rate — although having fallen from the record highs seen in previous quarters — was still above 42%. To put this statistic into perspective, during the fourth quarter of 2017, before Ramaphosa took over the reins of the ANC, the expanded unemployment rate was 36.3%. Generally higher levels of unemployment mean greater pressure on households, which also have to contend with the elevated cost of living. 

Meanwhile, on average real wages have declined amid harsh economic conditions, which, amid load-shedding, are far from easing. 

And despite this reality, interest rates have been ratcheted up amid a view that wages still stand to push up inflation — a situation that fails to acknowledge that the current price dynamics are the result of, as economic historian Adam Tooze explains, “a one-sided redistributional push by capital at the expense of labour”. 

In other words, workers are getting poorer as their incomes have had to stretch even further. All this in the name of protecting financial profits at the expense of the real economy.

In the wake of these headwinds, which have been undeniably harsher on workers than they have been on profit makers, policymakers have responded by leaning further into their free market ideals, rather than acknowledging that they are the source of our economic failures. This has come out in their constant doubling down on the need for “trade-offs”, despite there being very little left that people are willing to give up.

Since 1996 — when the Growth, Employment and Redistribution (Gear) strategy was unilaterally imposed — South Africa has adopted an orthodox macroeconomic policy framework that has focused on price discipline, through inflation targeting, and reducing fiscal deficits, partly through privatisation and by containing spending. 

Gear, which was at the heart of the rift that emerged between Cosatu and the ANC in the late 1990s, is widely regarded as having dismal developmental outcomes and as promoting outward, market-oriented economic policies. 

In a discussion document, Cosatu argued that Gear “was a clear case of policy driven by panic — due to the fall of the rand and pressure from the amorphous market” and that the strategy was part of “a concerted attempt to impose capital’s agenda on society as the only feasible alternative to social and economic transformation”.

Although the state has cast itself as a market friendly actor (and who better to uphold this than Ramaphosa?) orthodox macroeconomic policies have failed to deliver on their promises of more investment, growth and jobs. Instead of transforming the economy, this framework has thrust South Africa into a prolonged period of stagnation and, in some instances, regression. The economy, more vulnerable to the ructions of financial markets, has become less capable in dealing with crises, which, as we continue down this path, will become more frequent.

Now, 27 years later, it is painfully clear that the policies that have persisted since the late 1990s have pushed the country’s economy towards a crisis point, threatening to create a level of social chaos that will be untenable to most. And yet, an overhaul of economic policy continues to be off the table. 

Signs that the macroeconomic orthodoxy ushered in by the Washington Consensus has failed are everywhere. Economies around the world have stagnated and have failed to keep unemployment in check. Jobs are precarious and workers struggle to make ends meet. Meanwhile, inequality continues to run rampant and these conditions are made even more perilous by the climate disaster.

In 2014, American economist Joseph Stiglitz repeated the old adage, “If the facts don’t fit the theory, change the theory”, when writing about how austerity had failed in Europe. 

“But its defenders are willing to claim victory on the basis of the weakest possible evidence: the economy is no longer collapsing, so austerity must be working! But if that is the benchmark, we could say that jumping off a cliff is the best way to get down from a mountain; after all, the descent has been stopped,” Stiglitz wrote. 

It is this type of absurdity that we face when stubbornly pursuing policies that have proven time and again to be utterly ineffective. It finds expression whenever our president claims victory over unemployment, whenever the rate retreats another percentage point.

As Cosatu pointed out in its criticism of Gear, so much of our policy decisions seem to be guided by fear of punishment by markets. But the question is, is there not a far more chilling fate that awaits us?