Supplementary Budget 2020

ANALYSIS | Channelling Thatcher: Battle with unions will be Ramaphosa, Mboweni’s biggest test

On Monday, March 12, 1984, Britain’s National Union of Mineworkers embarked on a year-long strike in that country’s coal mining industry, which had been nationalised in 1946.

The cause of the national strike, precipitated by the closure of a coal mine in Yorkshire, was Conservative Prime Minister Margaret Thatcher’s government's plan to embark on a process of coal mine closures because they became economically unviable.

In her autobiography Thatcher writes that “history intertwined with myth” made coal mining “a special case, an industry where reason simply did not apply”. And the fall of Edward Heath’s government in the early 1970s perpetuated the belief that the NUM had the power to make or break governments, “or at least the power to veto any policy threatening their interests…”

Arthur Scargill, the NUM leader, resolutely refused to consider economic reasons when the future of a coal mine was discussed. Thatcher writes: “Indeed, he denied the existence of ‘uneconomic pits’: in his view a pit that made a loss – and there were many – simply required further investment.”

When asked to testify before a parliamentary committee Scargill was asked if there were any level of loss that would be intolerable. “As far as I am concerned, the loss is without limit,” he replied.

President Cyril Ramaphosa and Finance Minister Tito Mboweni’s stated ambition to slash the public sector wage bill has set the scene for a confrontation with public sector unions and trade union federation Cosatu.

And it will be the defining confrontation of Ramaphosa’s presidency, with significant economic and political ramifications. If the pair cannot force through reforms, then fiscal stability will remain under threat with government beholden to short-term factional interests.

Mboweni – along with Public Enterprises Minister Pravin Gordhan – is one of Ramaphosa’s key lieutenants. He has shown a refreshing independence of thought from mainstream ANC ideology since his appointment in October 2018, and has been unafraid to speak his mind on a wide range of topics, which has angered and frustrated many party men committed to ancient ANC dogma.

He openly questioned the need to retain a national airline during his very first media engagement after he was named finance minister, saying the state should rather invest in public transport for the working class. He has been vociferous in his criticism of government waste and inefficiencies.

But he will have to be well prepared for what lies ahead because the resistance from the unions, for so long part of the ANC’s governing alliance, will be unlike anything else he’s seen.

The economic case for slashing the wage bill is well documented. Almost R40 of every R100 government spends goes into the wage bill, while wages have in real terms increased by 40% over the last 12 years. This, “without equivalent increases in productivity,” according to Treasury. 

While average wage increases in the private sector last year amounted to 2.4%, the public sector far outstripped that, with an average increase of 7.2%. “Remuneration growth is increasingly out of line with the rest of the economy,” Treasury says.

“Growth in the wage bill has begun crowding out spending on capital projects for future growth and items that are critical for service delivery,” Treasury notes in its annual Budget Review. Government wants to implement savings of R160bn over the three-year medium term, with a prospective saving of R37bn in the coming fiscal year, all things being equal.

Treasury has, for the last few budget cycles, identified two main threats to fiscal stability: Eskom’s debt and the “unsustainable” public sector wage bill. Government has now started, albeit at a glacial pace, to tackle reforms at Eskom and the appointment of a new chief executive is expected to accelerate this process.

The Cosatu question 

But the wage bill has remained a tough nettle to grasp, and the reasons are political. As in Thatcher’s Britain, there has been a common belief that the ANC government cannot remain in place without the consent of the unions, particularly the public sector unions, who in large part remain affiliated to Cosatu, the ANC’s largest alliance partner.

Cosatu, before it was largely neutered as a nominally independent organisation by Jacob Zuma, was the backbone of ANC organisation and the party relied heavily on its organisational capabilities and reach during periods of mobilisation. Ideologically the ANC and Cosatu have also been in the same orbit, although the realities of a market-based economy have always led to some tension. 

The ANC has always seen to it that the unions – who provide votes and organisational strength, are well looked after, and that their interests on the shop floor converge with the party's political interests.

This has led to the situation that South Africa finds itself in now: a bloated and inefficient public service largely suffering from a severe lack of civic duty, used to above-inflation pay hikes and holding the economy to ransom.

At a press conference ahead of his budget speech on Wednesday Mboweni was dapper and cheerful, saying: “Do I have support (from his colleagues and allies)? Yes, I do… yes I do.”

The negotiations to cut the wage bill are going to be arduous, antagonistic and acrimonious. Unions are already threatening “war” and general strikes. This will be a case of an ANC government going against its own political interests by resisting the economic demands of one of its oldest partners. It is going the be a test of character and conviction for both Ramaphosa and Mboweni.

The coal miners’ strike came to an end in February 1985, almost a year after it begun. Thatcher refused to give in, and managed to steer the country through a tough winter with dwindling coal stocks. She had broken the NUM and “established that Britain could not be made ungovernable…”

The strike was about more than economics, it was about politics, too. “From 1972 to 1985 the conventional wisdom was that Britain could only be governed with the consent of the trade unions. No government could really resist, still less defeat, a major strike…many on the left and outside it continued to believe that the miners had the ultimate veto, and would someday use it. That day had now come and gone,” she said.

The ANC government has always consented to union demands. And, like with the coal miners in Britain, Cosatu, the unions and the SACP seem to be immune to economic sense and logic. They will resist and revolt against Mboweni’s plans. There will be talk of strikes and shutdowns. And they will threaten to withdraw their support of the ANC.

The looming confrontation will be the Ramaphosa government’s ultimate test. Will Ramaphosa and Mboweni have the conviction and fortitude to stay the course of reform, like Thatcher did?

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