DONALD MACKAY: SA needs the chance to graduate to a sweatshop economy

A third of working age South Africans are unemployed, with almost double that proportion unemployed in the youngest quintile. The government comes up with endless job creation programmes that never put a dent in the unemployment rate. We subsidise industries, give them duty protection, impose merger conditions on companies to force them to buy local, and give import duty concessions only if companies agree to employ more people. Yet nothing gets better.

We call our high unemployment rate a problem, whereas it is a symptom of the real problem — labour laws that make it difficult to employ people. In a 2021 address to union federation Cosatu, President Cyril Ramaphosa said: “The introduction of the national minimum wage was a victory for all workers of our country and gave effect to a demand made more than 50 years ago” (when the Freedom Charter was adopted). “By improving the [incomes of] lowest-paid workers, the national minimum wage contributes to reducing the high levels of poverty and income inequality.”

But this simply isn’t true. Inequality in SA is not as high as it is because workers are underpaid, it is because a third of working-age South Africans are unemployed. Poverty is high because 28-million people live on some form of social grant instead of a wage. We are fiddling at the edges if we don’t tackle this problem.

When you have a minimum wage, the government sets a minimum level on the value of someone’s labour, irrespective of how the potential employer values that labour. The government has decided that a person who is unemployed may not legally take a job below the minimum wage, even if the alternative is living on a social relief of distress (SRD) grant of R350 a month.

There is no work experience on a social grant. There is no network that develops over time, as happens in the workplace. Nothing. Just grinding poverty and the diminishing hope that you can find a piece job at the traffic lights.

SA fears becoming a sweatshop economy, but we should be so lucky. With our current set of labour laws we will take years to graduate to that level. The unions love a minimum wage because the business of a union is collecting dues from people who are employed. There is no union for the unemployed.

What would they do? Withhold their labour? It is already forced out of the marketplace by these rules. Unions, you might have noticed, don’t throw their membership doors open to people not able to pay their dues. In post-sweatshop economies discussions about a minimum wage may make sense, but when a third of the population can’t find work it makes no sense.

Places such as Vietnam or Bangladesh come to mind when considering sweatshop economies. The average income in SA is R77,192 a year, compared to R73,409 in Vietnam, but the median income in Vietnam is R59,563 a year, compared to R30,718 in SA. Why is Vietnam’s average wage lower than SA’s yet its median wage almost double? Because to calculate the median you line everyone up from poorest to wealthiest and when you get to the person in the middle you take their wage.

In SA you need to count an awful lot of unemployed and very poor people before you get to the middle. Our levels of poverty and inequality are far higher than “sweatshop” Vietnam. Our unemployment rate is 33%, whereas Vietnam’s is 2.3%. Almost no-one lives on our R350 a month in Vietnam.

Bangladesh has a median wage of R51,646 a year and an average wage of R55,404 a year (low levels of inequality). Their wages are rising by an average of 8% a year, with unemployment down to 4%. In 20 years, who do you think will be better off? A worker in SA, Vietnam or Bangladesh?

There are many horrors in sweatshop economies — they are not a nirvana for workers — but the alternative is worse. It is what we have now. Suicidal levels of poverty with no prospect of improvement. According to Census 2022, 50% of South Africans older than 20 years have not finished high school and 7% have no schooling at all. These are medieval levels of education, yet the expectation is that companies should be flocking to employ these people at the minimum wage. As is obvious, this is not happening.

The late British economist Joan Robinson noted in her 1962 book Economic Philosophy: “The misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all.”

The accusation that all companies care about is profit, even at the expense of their workers, misses the point. Without profit companies fail, and failures happen all the time. When these companies are state-owned, the taxpayers fund those failures until the money runs out, which is where we find ourselves now in SA.

We don’t have a high unemployment rate because companies exploit their workers. Even in the most labour-intensive sectors such as clothing manufacture, employment has halved over the past decade. This has happened despite ever-increasing amounts of support for the sector from the government. One might cynically say that if you want to identify the next failing industry, just look at the sectors with master plans.

The current set of labour policies doesn’t even allow SA to become a sweatshop, so it’s not clear how we will rise above this to enter the fourth industrial revolution. As AIforBusiness.net founder and Business Day columnist Johan Steyn noted in his recent column, “While failing to tackle the fourth industrial revolution the government needs to implement reliable 2IR solutions.” (“‘We are offline’: SA government and the second industrial revolution”, October 11).

• MacKay is CEO of XA Global Trade Advisors.