High wages, low productivity
“This country employs 1.5m people in the manufacturing sector,” Pillay said, by way of explanation. “And manufacturers struggle with a high-wage to low-productivity ratio.” Worker productivity is usually calculated by dividing total output by the number of workers or the number of hours worked. Labour yield has fallen from R7,297 ($687) to R4,924 ($463) a year since 1967, a decline of 32.5%. From a peak in 1993, labour productivity has plummeted by 41.2%, according to a 2013 report from Adcorp, a Johannesburg Stock Exchange-listed human capital management group.
Industry complaints about productivity generally focus on unions’ high wage demands and an abject lack of skilled or educated workers. However, productivity is not just a worker issue, but a management issue, argued Cosatu’s Craven. “If your productivity is low, don’t the managers need to be held accountable?” he asked.
Craven is not troubled by high wages. He pointed to Brazil’s vaunted “Lula moment” during the 2000s, when then-President Luiz Inácio Lula da Silva raised basic wages, social grants and provided subsidies for small businesses. The Brazilian economy exploded, growing 7.5% in 2010, according to the World Bank. “And not,” said the union stalwart, “by underpaying workers.”
The state has a role to play in bridging gaps between industry and labour, Craven said, but perhaps not the same role that the industry representatives on the panel had in mind. “We need a developmental approach,” he added. “Market forces alone are not going to fix this.”
Most of those gathered agreed that a weak rand – usually hyped as a salve for manufacturing – was not a silver bullet. Lowering the value of the currency, while helpful in the short term, was not going to fix the desultory structural issues that were destroying the economy and shedding jobs like so much dandruff.
Lessons from Germany’s success
The issue, Davies suggested, was not that there were no ideas, but that those ideas were not being communicated between industry, labour and government. Davies recalled post-unification Germany as an example of a country that successfully bridged these gaps.
“Similar to South Africa,” he said, “in 1990 Germany was [a] newly united country, with its population living in… different stages of development. But the Germans were able to significantly integrate the East into the developed economy, drive employment figures up, and keep industry manufacturing high-end goods with skilled and educated employees earning a living wage… and while Europe dies around it, Germany thrives. Never mind the ‘Lula moment’, what about the Merkel moment?” he asked, referring to Angela Merkel, Germany’s long-term chancellor.
According to a 2001 study from the Brookings Institution, a think-tank based in Washington DC, “from 1989 to 1992, GDP in the former German Democratic Republic (GDR) declined by roughly 30%, value added in industry by more than 60%, and employment by 35%. During the same period, unemployment rose from officially zero to more than 15%.” In short, Germany’s east was a backwater in 1992.
But by 2000 the former GDR’s GDP per capita had risen to 65.3% of the former West Germany’s, thanks to a comprehensive programme of wealth transfers and industry-government collaboration. Berlin did everything in its power to ensure factories did not leave Germany; development was not an economic drain, but an economic engine. As the writers of the study argue: “The ultimate measure of the economic success of German reunification is no longer the introduction of a market economy, but rather the attainment of an efficient production pattern made possible by the union of the two regions.”
While Germany’s manufacturers can rely on an endless stream of highly educated, highly skilled workers entering the work force every year, South Africa’s cannot. As Craven has noted: “Our education system is in a crisis and it sidelines 400,000 young people who do not proceed with their studies after writing exams every year. Today, 95% of the people who are unemployed have no tertiary education, 60% of the unemployed have no secondary education. As a result of this crisis, 68% of the unemployed have been unemployed for the past five years or have not worked in their lives.”
What can South Africa learn from the Germans? First, it can buck up employment by ensuring that the education system provides the jobs market with highly skilled, highly productive workers. Next, it can support industry at the research and development level. It can encourage factories to stay on shore with aggressive tariffs and foster an environment of innovation, where industry builds for an international market with an appetite for excellence. Last – and perhaps most important – it needs to create a culture of cooperation, where a win for labour is a win for industry is a win for government.
This article was first published by Good Governance Africa.