South Africa needs to urgently graduate to become a sweatshop economy

This article by Donald Mackay, first published in XA Global Trade Advisors on 19 October 2023, is a must-read. It spectacularly illustrates how the misery of 'being exploited by capitalists' is nothing compared to the misery of not being exploited at all.

33% of working age South Africans are unemployed, with almost double that unemployed in the youngest quintile. Government puts out endless job creation programmes, which 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 only give import duty concessions 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 which make it difficult to employ people. In a 2021 address to Cosatu, President 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 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 South Africa is not as high as it is because workers are underpaid, its 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 address this problem.

When you have a minimum wage, government sets a minimum level on the value of someone’s labour, irrespective of how the potential employer values that labour. 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 per month. There is no work experience on a social grant. There is no network which develops over time as happens in the work place. Nothing. Just grinding poverty and the diminishing hope that you can find a piece job at the traffic lights.

South Africa 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, which is forced out of the market place 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, this makes no sense.

Places like Vietnam or Bangladesh come to mind when considering sweatshop economies. The average income in South Africa is R77 192 per annum, compared to R73 409 in Vietnam,  but the median income in Vietnam is R59 563 per annum, compared to R30 718 in South Africa. Why is Vietnam’s average wage lower than South Africa’s yet its median wage is 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 South Africa 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 much higher than “sweatshop’ Vietnam. Our unemployment rate is 33%, whereas Vietnam’s is 2.3%. Almost no one lives on our R350 per month in Vietnam.

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

There are many horrors in sweatshop economies, but the alternative is not a worker’s nirvana. It is instead what we have now. Suicidal levels of poverty with no prospects of improvement. According to Census 2022, 50% of South Africans over 20 years old 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 minimum wage. As is obvious, this is not happening.

The economist Joan Robinson notes 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 idea that all companies care about is profit, even at the expense of their workers misses the point, Without a profit, companies fail and failures happen all the time. When these companies are state-owned, the taxpayers fund their failures until the money runs out, which is where we find ourselves now.  We don’t have a high unemployment rate because companies exploit their workers. Even in the most labour intensive sectors like clothing manufacture, employment has halved over the last decade. This has happened despite ever increasing amounts of support for the sector from 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 don’t even allow South Africa to become a sweatshop, so its not clear how we will rise above this to enter the fourth industrial revolution. As Johan Steyn notes in his recent Business Day opinion piece, “While failing to tackle the fourth industrial revolution the government needs to implement reliable 2IR solutions.”

By Donald Mackay, Chief Executive Officer at XA Global Trade Advisors.