Curse of labour costs

2011-05-30 00:00

SOUTH Africa is not alone in having to face rising labour costs and a critical skills shortage. It shares these unpleasant scenarios with China and India, the world’s two fastest-growing large economies.

India’s wage and salary costs are forecast to rise by 13% this year as its reserve bank battles to control inflation. Chinese wage costs are predicted to rise by nine percent and it risks losing jobs to other low-wage and high-productivity countries such as Vietnam, Indonesia and the Philippines.

There are also shifts — chasing comparative advantage — from China to India.

Recently the London Financial Times reported that Coach, the big United States accessories brand, “is planning to move up to half its manufacturing out of China to escape rising labour costs”.

Simultaneously Coach aims to increase its sales to China, thus reflecting the ceaseless pursuit by business of lower costs and higher sales.

China is becoming a consumer giant and — as has occurred in the U.S. and Europe — will start losing jobs to societies not yet in its class as a consumer rather than a producer.

Where is South Africa in all these global shifts? Shifts that never stop happening and which destroy those who ignore or resist them? Sadly, we aren’t much in touch with reality.

For example, while China might be struggling with labour costs, its average worker earns R2 000 a month, while ours receives almost R11 000. It’s also reasonable to speculate the average Chinese worker is more productive than his or her average South African counterpart.

In making comparisons it must be borne in mind that China — notwithstanding its giant strides — retains a heavily agrarian aspect to its economy, with 38% of its labour force still on farms, compared with nine percent in SA. Incidentally, the world’s most productive agricultural producer — the U.S. — employs only 0,7% of its workforce on farms.

Further, while South Africa generates only three percent of its gross domestic product (GDP) from agriculture, China generates more than three times that ratio at 9,3%. Overall, China’s GDP per capita has risen rapidly from $6 200 in 2008 to $6 800 in 2009 and $7 400 last year. In that period South Africa’s GDP per capita has stagnated at $10 700.

So while in some cases Chinese labour costs are becoming less competitive against some of its Far Eastern manufacturing rivals, it remains, and will remain, streets ahead of SA labour in providing value for money.

It’s therefore illogical for South Africa’s trade union movements and certain elements in government to seek to protect our workers against foreign competition, which penalises the consumer and distorts the use of our human and natural resources, because such use will be dictated by the state and its allies rather than in rational response to market signals.

It’s clear bodies such as Cosatu, abetted by elements in government, would very much approve of a move towards a demand economy that’s structured according to the diktats of officials rather than to market indicators.

In such an economy there would be no Massmarts or Checkers or Pick n Pays, while Walmart would certainly not be here seeking to invest in our country and the continent. Instead there would be a GUM giant owned by the state, such as that which traded on Moscow’s Red Square until the collapse of the Soviet Union.

One suspects trade unionists fondly believe successful commercial enterprises simply appear and then are there in order to employ their members at prices (wages being the price of labour) that can’t be justified.

There seems among union officials not to be any appreciation whatsoever of the skills, courage, patience and sheer hard work that must go into an enterprise, which even then is never guaranteed success, but if it achieves such must continue to excel in order to survive.

I was reminded of Comrade Stalin’s endless five-year programmes when Jacob Zuma told us his government was going to create five million jobs in five years. Meanwhile Eskom — which is 100% state-owned and pays its employees an average R500 000 each a year, is advertising for labour brokers — whom Cosatu wants banned — to help it with catering staff.

Welcome to the crazy Union of Soviet Socialist Republics of South Africa. — News

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