South Africa To Remain Stagnant On The Edge Of Socio Economic Unrest

Headlines like “clothing workers to reject new wage offer” truly highlight the harsh reality of the current and future South African economic landscape. On the one hand one cannot help but to feel truly sorry for these factory workers. Surviving on a R1000 cannot be easy.

Every industry in South Africa have striked over the past 6 months, or are planning to do so soon. And I can understand why people would want to strike, and demand better pay. But what is surprising is the timing of the strikes and the extent of the demands: Double digit wage increases when the CPI is only 8%, and the rest of the world gets significant pay cuts, or worse, laid off. One would expect a sensible partner of the economic ecosystem to support businesses to keep their doors open, and ultimately save jobs. But instead trade unions come around at the most difficult phase of the business cycle, demanding even more from business, that is already on its knees from the recession.

This clearly demonstrates the complete disconnect between labour and business in South Africa, and how the one views the other as an enemy, rather than seeing themselves as different sides of the solution. Labour’s ideas and actions are still steeped in Marxist ideology, where free enterprise is the villan always out to abuse poor factory workers (and this often is the case). South African trade unions also sell the fable that a welfare state is the answer to South Africa’s poor.

Wellfare State

Many citizens and trade unions hold the believe that government should provide housing, healthcare, infrastructure, and even jobs. The big problem is that the positive effects of government expenditure are always followed, and often overtaken, by formidable negative consequences. I’m not even referring to the huge problems of corruption, favoritism, and inefficiency that is often associated with government. Why do I make such an upsetting assertion against our much beloved government?

The big problem with government is that it requires external funding for anything it wants to do. Ultimately it is dependent on individuals and companies for its funding. The more capital government has, the less someone else has. The reason for this is that government produces little of value, and almost never makes a profit, if it is producing and selling something. So where does government get the funding it requires to fund its bureaucratic agenda.

The most obvious way to obtain the necessary funding is through taxes.

The net effect of this is that instead of spending or saving more money on the things that are most important to the company or individual, more money is diverted to the government. This means that everyone else earns less, and if a business earns less it employs less people and is less likely to save and is more vulnerable to a slowdown in the economy.

Another option available to government, to finance its budget, is through the issue of treasury bonds. There are a number of problems with issuing bonds. First of all it competes for the same savings, as other types of securities. This means that when investors acquire government bonds, there are less funds available to entrepreneurs, and funds available cost more. This makes it more challenging to business to obtain start-up or growth funding.

The last option is to inject more money into the economy by creating and spending it or making more of it available through banks. The net effect is the same, the supply of money is increased, which in turn causes inflation. Inflation favors consumption, because if you save money it becomes worth less the longer it is saved. It is also better to borrow money, because the repayments are worth less the further in the future they occur. This creates a very unsustainable business cycle, where capital is poorly allocated until it ends with the bursting of an economic bubble. An economy biased towards consumption or saving is unsustainable. For an economy to become and remain healthy, a good balance between consumption and saving must exist.

For a business to succeed it requires a sustainable, and relatively predictable environment.

Trade Unions

One of the key problems South Africa faces is the apolitical nature of trade unions. Trade unions support a specific political party, and encourage their members to vote for this party. This provides trade unions with a powerful political voice, and the ability to influence affairs beyond economic and labour spheres.  On the other hand politicians willing to dance to the tune of the trade unions, obtain a single support base that can put them in power. Jacob Zuma used this fact to his advantage with great success, and the detriment of Tabo Mbeki.

This begs the question: Why is South African trade unions so involved with politics? To answer this question we need to revisit the liberation struggle. The trade unions formed a very important part of the liberation struggle against the racist apartheid regime. During the later years of the struggle, the ANC was collaborating closely with the trade unions as one of its revolutionary partners. For instance in 1981, “the ANC for its part was trying to support workers’ strikes by taking armed action against certain companies.” The ANC petitioned “the creation of combat units at factories,” at a meeting to form a national trade union federation. At that time the ANC assisted as the integration force of the trade unions with other opposition organizations (Vladimir Shubin, ANC a View From Moscow, 2008).

Pre 1994 the ANC and trade unions as a joint political movement, with a common enemy, made complete sense, to mobilise black workers against the apartheid government. But when the ANC came into power it became responsible for more than the social welfare of the country and the people’s liberation. In this new phase of the ANC’s life, it is responsible for two opposing forces. Why are they opposing? Because the South African trade unions favor a communist arrangement of the economy and society, instead of seeing business as their partner providing jobs to their members.

The Entrepreneur’s Ship Is A Canoe

After going over the things that got the country to where it is today, the next thing to ask is, what is the solution to these problems? There is only one individual that can truly move South Africa forward, and deliver the improved quality of life that was promised during the liberation struggle. This is the individual, or individuals, that can think critically about problems or opportunities and invent solutions demanded by the market. Government might be able to run some enterprises moderately successful. But let’s be honest here. Government has never achieved a reputation to efficiently identify new needs and bring innovative solutions to the market, that leads to an improved quality of life for employees and consumers. Government also lacks the ability to extend this beyond its own national borders. The entrepreneur can extend his successes across the globe.

Government and the labour movement has an important role to align their strategy to stimulate, support and sustain entrepreneurial enterprises. They should give consumers the freedom to choose what is most important to them, and allow entrepreneurs to provide a range of options. Not force them to buy, say electricity, from only one supplier, Eskom.

This does not mean that the Department of Trade And Industry’s budget should be doubled, so they can hand out more loans to entrepreneurs, or that another government programme be launched to lecture people on the virtues of entrepreneurship. What I am referring to is that government must understand the total impact they have on the economy and how it affects entrepreneurs. Rather than spending millions on keeping South African Airways running, sell it and reduce the amount of taxes and bonds issued. This will allow consumers to direct more of their money at what’s really important to them, which in turn will give entrepreneurs a bigger incentive to start or increase their business based on what is really important.

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