Traditional labour policies are hurting SA

When we learnt that 237 000 people had lost their jobs in the first quarter of 2019, it was an indication of the shape that 2019 would be taking. Things progressed, with bad news all around for the South African economy and workers.

Furthermore, the economy remains scaffolded by upper-hand politics, where big talk doesn’t translate into bold policy action.

These dynamics are factored in when rating agencies consider a country’s economic outlook. Based on Moody’s and S&P’s appraisals this month, South Africa just escaped junk status, but a downgrade is inevitable. Unless the low-growth cycle, the rapidly skyrocketing fiscal deficit, the insignificant labour absorption rate and state-owned enterprises’ debt are all magically fixed in the next quarter, I don’t see how a rating downgrade will be avoided.

Not that politicians and their plans have ever managed to reverse the decline of the economy.

If anything, politics has become an overpowering odour that is worsening the country’s economic conditions.

The consequence is a society that is on a sword’s edge, as many people barely have the necessities and the thread holding everything together can break at any moment.

The law of unintended consequences

What should be worrying our fellow compatriots is that in a span of 18 months of the current administration, no one – the president included – has shown any sign of leadership capable of what was so obvious to French economist Frédéric Bastiat (1801-1850), who, in his essay ‘What is seen and what is not seen’, wrote that “the good economist takes into account both the effect that can be seen and the effects that must be foreseen”.

What our leaders time and again fail to understand is how the current economic slump is ambling the country toward a social crisis that no grand or visionary speeches, themes or plans can fix unless decisive action is taken.

Here is one example: months ago President Cyril Ramaphosa hinted about possible labour reforms to tackle labour market challenges, including the labour absorption rate and productivity predicament. Talks about amending labour laws to create a business-friendly environment to attract more investment were gaining momentum – but the noise has since died down. It began to fade at the first sign of union unhappiness.

It’s time to grasp the nettle firmly

What the country needs is bold action from a leader who will tell the unions that the reforms will be short-term, but they must and will happen, because without such flexibility, the economy won’t attract investment or create jobs.

If politicians use evidence-based arguments in their engagements with unions, they would surely point to the 2018 Organisation for Economic Co-operation and Development (OECD) ‘Good Jobs for All in a Changing World of Work’ Jobs Strategy report, which declares that South Africa has the lowest productivity growth rate among emerging economies. Of the OECD’s 36 member countries, only three have negative rates – SA, Brazil and Argentina).

In particular, low productivity performance in South Africa is reflective of  the skills shortage, the high cost of doing business, and the lack of competition in many markets.

How do we change this?

One way is to use flexible labour reforms that respond to the constantly evolving realities of work.

Technological advancement and the interconnectedness of the global economy has redefined work and the workplace. Growth in employment is characterised by trends towards positions that are temporary, subcontracted, casual and precarious. This reorganisation of work will soon spread to sectors that have traditionally offered fixed-term or permanent employment. In other words, as work is reorganised, so is production.

Labour laws that temporarily forego job protectionism and adopt flexibility will enable companies to employ more people as job opportunities are created.

Traditional labour policies have to change and be adaptable to reflect the shifts in work and workplace.

“Hooray!” says the private sector – it means more freedom to fire and hire without the constraints of the labour laws.

Not so fast.

The government must be clear that flexibility in labour laws does mean job insecurities for workers. Reforms must come with a condition and be supported by rules that will enable workers to benefit from protective measures, especially those who are not safeguarded by fixed-term employment.

Self-imposed constraints

The constant shifts in the global economy have resulted in redefined work and will continue to do so because of innovation, technology and new niche jobs that are emerging. Low productivity and inflexible policies that cannot respond to the labour market changes that are unfolding are constraints that we cannot afford.

Bastiat understood how the present insignificant yet visible ‘bad’ (in this case, the pain of making labour laws flexible and facing union dissent) must be followed by a greater but invisible future ‘good’ (job creation and adjustable labour laws to match the changing world of work without causing economic insecurities for workers; a labour force that can seamlessly move with employment trends).

In short, inflexible policies – and not just those related to labour – may be great for now, but they can have far worse outcomes for the future.

It may be that as you read this, you work in the country’s highest office or know someone who does. Pass the article along and remind them of need to consider the unseen as much as you discuss the seen.

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