DARYL SWANEPOEL: End the social compact tug-of-war: lessons from Denmark

The SA economy is being slowed by a muddy tug-of-war. Business is pulling at one end, seeking expansion of enterprise coupled with investor-inducing profits. Meanwhile, labour has kicked in its heels on the other end, fighting, it says, against worker exploitation. The state is caught between the two, left trying to appease both sides to ensure a stalemate does not bring the economy to its knees.

Anecdotal observations of the past year’s headlines reveal a hostile relationship between the representatives of business, labour and government. At one point union federation Cosatu was quoted calling its protest a “pushback and a response by the workers to the ongoing class warfare directed at them by both the public and private sector employers”.

This troubled relationship comes as President Cyril Ramaphosa advocates the finalisation of a formal social compact between the three parties to ensure effective co-operation in uplifting the economy from the quagmire it is in. That the proposed document has yet to be finalised as we enter 2023 underlines the fractured working relationship between the compact partners.

Much can be pondered as to how SA reached slow economic growth, high levels of inequality and record unemployment, but that is the country’s reality. And whether you are a supporter of Ramaphosa the owner of Phala Phala or not, Ramaphosa the statesman is correct in calling for co-operation to move the country forward. It will require a shift from the tug-of-war to a pulling of the rope at both ends and in the same forward motion, in so doing operating in a similar fashion to fishing with a net.

The Danish arguably have one of the best-proven track records of a solid social compact through which economic progress had been forged, and continues to be relied upon, to expand social wellbeing and prosperity. However, the differences between Denmark and SA cannot be starker.

Apart from the contrasting climatic conditions, as the two are located on the opposite ends of the earth, Denmark has a homogeneous population roughly the size of Johannesburg, with a sharp economic focus on high-value-added products and services. The state further restricts its own role to that of a supportive player, leaving labour and business to operate within the relevant market forces.

Important to the success of this operational model is a near corruption-free government, an extensive social welfare net and deep levels of trust and co-operation among participants. It is apparent that these characteristics are missing from the SA social compact.

How do we remedy this? First, the state will have to clear its house of corruption and release its grip on limping state-owned entities to help limit fiscal wastage. Some government authorities will also have to forego long-held ideologies about state control of economic activities and adopt a more laissez-faire approach.

If this shift is accompanied by policies that simplify business operations, as embodied in the Danish model, it will support business expansion and in turn result in higher tax revenues. Combined, these steps will increase the pool of funds through which the state can develop a social safety net.

Social welfare benefits are considered a right in Denmark. This has been critical in transforming the economy. It comprises an extensive range of services to its citizens from cradle to grave, ensuring equal opportunities and assistance regardless of income status. Parental assistance in particular needs mentioning, as it has been vital in providing security, especially to women entering the job market.

SA can further draw inspiration from Denmark’s requirement for the unemployed to participate in working programmes through which they can upskill themselves. It could serve as a blueprint for a future basic income grant.

The support system has allowed the Danish to implement less stringent and more flexible labour laws — something SA business representatives have been calling for. Not only will this allow businesses more flexibility in responding to shifting market conditions, it will encourage them to be less hesitant in increasing staff levels when business cycles turn positive.

In Denmark, business further benefits from the welfare programme in that the programme develops skilled individuals through the country’s highly ranked free education system. These all support the argument for higher taxes, since the additional funds raised are channelled to supportive measures that benefit all.

Labour may prove the hardest party to convince. It has been dead set against the privatisation of state-owned entities, and has often called on the state to intervene in private business matters. Labour has also been adamant that legislation governing hiring and firing should not be eased, as is proposed in the draft social compact. Underpinning this hard stance is an apparent lack of trust.

In Denmark business and labour share an understanding that one cannot succeed without the other. Relations, though robust, are kept smooth through a well-functioning collective bargaining system where large labour unions and employer organisations engage in a repeated wage-setting game. But labour sees this mechanism as an interest-based model as opposed to a positional bargaining one, the latter being relied on by many SA trade unions.

Key to effective bargaining by Danish labour authorities are sectoral negotiations, where the more export-orientated manufacturing sectors set the wage norm other sectors then use as a basis for their own wage talks. Social conflicts are resolved in a flexible and nonconfrontational manner.

Of course, the Danish model cannot just be copied and pasted into SA society, and nor can all these reforms be implemented at once. It will have to follow a staged process guided by the country’s fiscal ability to roll out social benefit programmes commensurate with the rate at which the economy expands.

But despite the vast differences, the Danish social compact holds valuable lessons from which SA can draw to strengthen its own social compact. It is a model underpinned by co-operation and the belief that all social partners are seeking an outcome of prosperity to the benefit of all.

If SA fails to establish such a co-operative approach the growth economy needed for job creation will, sadly, remain elusive.

• Swanepoel is CEO of the Inclusive Society Institute. This article draws from an institute paper, ‘SA can find inspiration in Denmark’s social model: labour and business’ participation in the social compact’, drafted with the Danish Economic Council of the Labour Movement.