At the heart of government’s new growth path proposal is the suggestion that if SA is to make real progress in increasing employment, then everyone — labour, business and the wider community — must put their immediate interests aside and make the necessary sacrifice to build a job-creating economy.
It’s not a new idea. Thabo Mbeki, while president, also aspired to bring about a social pact of this nature. But his efforts were frustrated by unwillingness, not just among the social partners, but, in the end, by government itself, which feared a bargain that alienated its trade union allies.
Will things be different this time? Can Ebrahim Patel, minister of economic development and a former trade unionist of more than 30 years’ standing, pull off what everyone else has failed to do?
Patel, who owes his place in the cabinet to the labour movement, has credibility — his commitment to the working class and the poor cannot be questioned. However, the main reason to believe in his chances of success, he argues, is that SA’s employment situation has become that much more desperate. He speaks of “absolutely enormous challenges”.
With 13m in work and 6,3m either looking for work or discouraged, the target set in the growth path proposal is to create 5m jobs in 10 years. But that, given that the labour force is growing each year , would only lower the unemployment rate from 25% to 15%, the model estimates .
“Government can’t create 5m jobs alone: business and labour also have to make a contribution. So our conclusion is that we need to get out of this short-term approach, where the tendency is for everyone to seek to maximise their gains as quickly as possible. Doing that will require great sacrifices.”
What are the sacrifices? Patel and finance minister Pravin Gordhan have described their envisaged social pact as a deal over wages, prices and savings. Union power has been driving up wage levels, which is inflationary. Gordhan noted in his medium-term budget policy statement two weeks ago that for the first nine months of this year, wage settlements had averaged 8,3%, while inflation for the same period was 4,7%.
The idea is that if unions will agree to wage restraint, government, through social and regulatory policy, will contribute to a better standard of living for workers.
“A number of ideas in the growth path will benefit workers in a real way. We’re not seeking to reduce the capacity of people to feed their families. [In the discussions] we will indicate what we can bring on the social wage [side] and we want to talk to both business and labour about inequality,” he says.
The social wage means welfare and social services, as well as reducing the cost of transport by developing new, efficient and cheaper mass transport, which would be of real benefit to workers who typically spend 30% of their income on transport.
On the price side, says Patel, aggressive and innovative competition policy will be used to benefit all consumers. This week’s judg ment by the competition commission against Pioneer Foods (see page 63) is a perfect example: the company was not just fined but told to commit R250m to a fund to promote competitiveness and enterprise development in the sector, and R160m in price relief to consumers.
“This is an example of what we can do. We could have gone the route of just a fine. Or we could say we are going to enter into a different engagement. With Pioneer, we really are signalling a different way of doing things,” says Patel.
The big one on the price side, though, is the exchange rate. An offer of a more competitive exchange rate would be attractive to both labour and many sectors of business. For the gains of depreciation not to be eroded by inflation, though, it’s crucial that wages are kept in check.
Says Patel: “If we increase the competitiveness of the rand and the result is that inflation rises, then the effect of that [rand] depreciation would not be felt. So we need to co-ordinate this. We need to make sure that increased competitiveness of the currency translates into expansion of the economy rather than an increase in margins [for the private sector] or wages.”
Would offers like these be attractive enough for labour to agree to wage moderation in return?
The first problem is that promises to improve social services, given their rapid deterioration in recent years, might not be seen as believable.
Second, the wages earned by most workers are not high. In 2004, for instance, the vast majority of workers in the formal sector earned less than R2500/month (see table). But the high cost of living in SA — where transport is expensive and public services are poor — means take-home wages are a lot lower than they look.
Rudi Dicks, head of Cosatu think-tank Naledi, says talking about a social pact in this context is “difficult”. “How do you talk about reducing the wages of low- skilled, low-wage people? If you have a bunch of support, you can do it, as in the East, where transport costs are lower and public services like health are better.”
Dealing with inequality — such as curbs on executive pay — will definitely be a part of the agenda in discussions on the growth path. And Patel says Cosatu’s concern with income inequality is valid .
“Though we acknowledge their [labour’s] concerns, they do have a responsibility to increase the number of jobs in society. More jobs would improve the quality of life of union members, too, who, at present, support large family networks, with the result that the wage is spread very thinly.”
Though all are economic arguments which unionists might be interested in entertaining , the biggest obstacle to a pact is politics .
Since the start of President Jacob Zuma’s presidency, the union movement has been in the ascendancy. It used its numbers to “swell the ranks” of the ANC and ensure Zuma’s election. But Cosatu expected real changes to economic policy in return for its support. Not having won these, it is diversifying its strategy.
Though still aiming to use its numbers at the ANC’s next elective conference to enhance its influence, it is also helping build pro-poor civil society organisations, which are mobilising against the ANC government. Last week’s civil society conference, jointly hosted by Cosatu, marked the beginning of this new strategy.
In anticipation of the growth path proposals, Cosatu published a detailed economic policy paper and political strategy document in September. Cosatu is adamant that a deal that binds wages to inflation will not just be bad for inequality, but could ultimately threaten its own existence . When unions hold back on wage fights, membership dwindles and unions lose their power, it warns.
With all this in mind, Patel has a mountain to climb in selling a deal to labour, despite the lure of a lower rand, capped executive salaries and better social conditions for workers.