It's the economy stupid(Part 1) - Lets get rid of the unions!
The JSE all-share index posted a third consecutive record high of 44 926.71 on Monday, after all-time highs of 44 689 on Friday and 44 514 on Thursday. Something seems to be amiss. How can the markets be on a rally when the economic fundamentals, which should be underpinning this market, are not in place? Where are the markets getting their confidence when the country is when all indicators are forecasting growth rates of more than 2%? Where are the markets drawing their confidence from when workers are struggling to eke out a living as inflation continues to eat into their wages and millions more remain unemployed and unable to gain meaningful employment? Where is this confidence coming from, when rating agencies continue to downgrade the credit rating and our economic policies are being criticised by both the political right and left. Something does not seem right?
The 2013 IMF Annual report on the state of South Africa’s economy released at the beginning of October, which was not well received in most quarters, declared amongst some of its finding that poor growth performance cannot be blamed on weak global conditions alone and that domestic factors such as strikes and policy uncertainty play are to blame for holding back growth and investment. Like a stuck record the IMF continues to point out South Africa’s “rigid labour market” and further proposes more deregulation. In the same line of argument, the report simplistically proposes that the South African labour relations regime has resulted in many workers in the mining sector and off late those in the automotive sector taking to the street and in effect resulting in capital flight.
While acknowledging the poor global outlook is partly responsible for South Africa’s growth lagging other emerging market economies, the IMF report also pinpoints policy uncertainty, labour disruptions, and electricity supply concerns as key problems that have held back investment and damaged growth and job creation. In short, the IMF has argued that our economy is not attractive for investment, owing to workers who are not prepared to sacrifice themselves at the altar of the market as a result has projected growth to slow to 2% and to recover only slightly to 3% - 3.5% in the next few years. This certainly does not make for good reading.
As a layman, how do I begin to make sense of these ostensibly contradictory developments? How can the value of companies, who are do not miss the opportunity to decry the harsh operating business climate, be increasing while at the same time we are told that all is not well in the general state of the economy?
As part of this initial post, let’s start off by discussing the state of the South Africa’s labour relations. As a point of departure, it is worthwhile to accept that right to embark on industrial action; the right for an employee to withdraw her labour and conversely that of the employee to lockout employees, are inalienable rights that need to be protected in any free market economy pillared on a constitutional democracy like ours. As a result any honest investor, if there ever was one, will have to cede to the fact that industrial action is an inherent part of a functioning and vibrant democracy.
As such any system of political governance, including constitution democracy, based on the principle of the protection individual liberties is by design bound destined to result in situations where the interests different sections of society resulting in conflict. This conflict is particularly sharpened when the material interests are irreconcilable, as in the case of shop floor disputes. Analysed crudely, the interest of the workers and those of the bosses (investors) are diametrically opposing each other. That is where dispute resolution institutions such as the courts (CCMA included) and instruments like the labour dispute resolution process, including the right to strike and lockout may be invoked. Disputes between workers and bosses are completely normal in a democracy. The other alternative would be to revert to an authoritarian form of government, based solely on the class interests of one section society akin to the apartheid system.
To further illustrate the point let us have a look at at the top ten countries with most number of annual strikes and lockouts, as published by a study by the ILO. It may be of interest to note for critics to note that South Africa does not even feature . Seven of the listed countries are from the developed world; namely Denmark, Italy, Russia, Span, Canada and Australia. Very few would argue against the idea that these countries could considered as models of matured democracies. Put in perspective, we can begin to see that there nothing exceptional about our labour disputes. How can there be if the antithesis would be to resort totalitarianism? This is the price people the world over pay for their democracies.
Having put to rest the question of “unruly workers” in face of this evidence; it remains to be answered as to why are South African workers browbeaten into financial subjugation by investors if they dare exercise their hard won right to bargain? Who are these seemingly faceless investors who threaten to withdraw their capital at a whim? And importantly, what is fuelling this market spurt which makes these seemingly unhappy investors so hesitant to invest in this country on the one hand and cheerleaders of the market on the other?
It is through answering these questions that one can begin to attempt to sew a thread that connects these seemingly incomprehensible events.
To be continued…….
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