Based on the comments made I can only assume many South Africans fail to understand how the economy works. Union leaders are trying to convince us that business owners are becoming rich from the exploiting their workers. The reality is actually quite different. In South Africa 63% of small businesses fail within the first 2 years alone. That means, even paying minimum wages, most businesses are not profitable. Should the minimum wage go up to R4 500 the failure rate will be much, much higher.
But for all those who have no idea how the economy works, especially union leaders, let me explain with a quick example. I know this is a very simple example but it should get my point across.
Let us say John has a degree and can get a job for R10 but instead he chooses to start his own company because he thinks he can earn more money that way. He borrows some money, employes some people and starts building boats. Every month he builds one boat. He pays the 8 people working for him R5 each which comes to R40. He pays R10 back on the loan he made to buy tools, he pays R20 for the wood he uses and he pays R10 tax. So it cost R80 to build a boat and he sells it for R100 leaving him with R20 profit.
Mr Lee from China also builds boats but he pays his people only R3 each so it cost him only R64 to build a boat. He however pays R16 transport cost to get it to South Africa so his boats also sell for R100.
One day John’s workers decide to strike because they want more money. They want at least R7 a day. That would mean a boat would cost John R96. He would not technically be bankrupt but he would be making less money than he would if he worked at a steady job with no risk. If he was the only one making boats he could increase his prices but since Mr Lee is selling his boats for R100 no one would buy John’s boats for the R116 he would have to charge to keep on making the same amount of money. What does John do? Would it be fair to expect him to work for less money? Should he suffer for the sake of his workers? No, he closes his business down and immigrates to Australia while the eight people who used to work for him are suddenly wondering why they now are unemployed.
What should be done to increase the wages John’s workers earn? Government should take the tax money and build training facilities. John’s workers should then sacrifice their time to be trained. Higher skilled workers would use machines to build boats instead of using simple tools. Now John can borrow money to buy machines for his better trained employees to use. So instead of building 1 boat a month he can now build 2 boats using the same eight people. So now he can pay each worker R2 more because they are more productive. He now pays R56 in wages, R40 for wood, R20 back on his loan and R20 in tax totalling R136 while selling his two boats for R200. He can now afford to hire more people and build even more boats. With the increased tax he is paying the government can afford to build better infrastructure as well as more training facilities. This is possible because the increase in wages was based on an increase in productivity instead of workers demanding more wages without doing anything to earn them.
Businesses are not welfare organisations. It is not their responsibility to care for people who do not want to work or are too lazy to better their own lives. The first responsibility of a business is to make profit. If a company makes profit it survives. That means it can pay tax, with which the government can give welfare benefits to those who need it, and employ people who are paid which will enable them to take care of themselves.
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