Walmart in South Africa

Walmart – MassMart

During a recent radio talk show on SAFM in South Africa, Mr Phillip Jennings, purportedly an international union leader, alleged that Walmart has a very ‘bad reputation’ for banning labour unions, preventing collective bargaining and exploiting workers.  He admitted that Walmart employs 1 500 000 workers in the USA.  These statements beg for a rational evaluation of their content, apart from the hype that Mr Jennings built around them.

At the lowest level, a worker is free to choose his or her employer.  If Walmart is a poor employer, for whatever reason, every potential employee may choose not to become employed by Walmart!  The opposite is not necessarily true – Walmart may be limited in deciding whether or not to employ a particular person, or to discontinue such employment if the person involved is not satisfactory in a general way.  The fact that Walmart employs some 1 500 000 workers in the United States must say something positive about the company, even if it is only that any job is better than no job!

At the next level, employment by Walmart of people at a ‘low level’ of wages and benefits, i.e. at a lower cost to the employer, has the result that Walmart is able to offer goods to customers at a lower price than its competitors.  Analysing this fact, it is immediately clear that high wage and benefits packages increase the cost of operations to the employer, and so the necessary selling price of the goods it sells to the public.  This leads logically to the conclusion that the effect of union wage and benefits demands results in an increase in the prices paid by the public!  This is not a particularly profound deduction, but the effect of it is that the unions play a role akin to the Government in ‘taxing’ employers, with the ‘tax’ being paid over to the employees, and a portion of it landing in the pockets of the union!  If this is such a desirable practice, one that no intelligent consumer would object to, why not set up a system of having prices set at the economic lowest level by the retailers and other sellers, with an optional ‘wage surcharge’ being added to the total.  The proportion of the total of such optional surcharge that is actually paid would show very clearly the support by the public for the demands of the unions.  It is unlikely that more than 5% of customers would voluntarily support such wage demands.  What this points out is that the unions are using their monopoly powers to extort an unfair (in the view of the ultimate customer) price for labour.  By avoiding this extortion, Walmart is able to offer the benefit of lower prices to the very large public.  If Walmart were to employ 100 000 persons in South Africa, those people would, in the argument of the trade unions,presumably, be able to obtain employment at lower than union rates but at a higher level than the very small unemployment benefit.  Against that small number, about 50 000 000 people – five hundred times as many! – would enjoy the benefit of lower costs.  Is that not an example of democracy?  If the majority of the customers did not like the way Walmart paid its workers, they would be free not to buy at Walmart and so express their disapproval!

Mr Jennings stated that companies like Pick n Pay would be forced to retrench large numbers of employees once Walmart becomes established in South Africa and that, in fact, it has already started such retrenchments by laying off 3 000 employees.  What Mr Jennings failed to inform the public is that Pick n Pay was subjected to a very damaging strike in 2010, the settlement of which resulted in considerably higher operating costs, leading directly to the need to retrench less economically-significant employees!  The cost of the strike itself was also, obviously, a significant factor in the reduced profitability of Pick n Pay, leading to a substantial reduction in the listing value of its shares. 

A further argument used by the Unions has been that retailers would reduce purchases of South African products and increase in the importation of foreign products.  The simple fact of this situation is that the cost of South African goods is excessively high in comparison with foreign competitors!  This was shown very clearly when a number of factories in the textile sector in Newcastle were closed, resulting in thousands of jobs being lost.  The owners of the factories declared that it was not possible to operate the factories under the high labour cost and restrictive labour legislation prevailing in South Africa.  They were supported in this contention by the workers, who declared that they would be willing to work at a rate of pay less than the minimum wage for the sector, in preference to being unemployed!  Another side of this argument is that the same low-cost imports are available to other retailers and these companies do, in fact import them.  A glance around any of the major retailers will show very quickly that numerous products are presently imported from China, India, Thailand, even Mauritius.  The activities of Walmart would not change this situation except, perhaps, by competing actively with those companies, forcing them to reduce their high mark-ups.

It is very clear that any rational person would buy an equal quality good at the lowest cost.  This applies to the end customers as well as to the manufacturer or retailer.  The ‘good’ might be an hour’s labour or a new television set, or a factory.  The choice of seller is open in the widest sense.  A potential employer has the choice of choosing from the range of job-seekers, and will make the choice based on the skills set offered, the attitude to the work and productivity, the cost of the labour, and similar factors.  This choice covers not only the Gauteng region, but also the nation as a whole and, in the wider sense, the world.  If a manufacturer can choose between equal quality labour in Gauteng, in South Africa and in the world, the cost of the labour package will play a significant role.  This package would include the direct cost of labour, the benefits required to be offered, the productivity of the labour and the flexibility of the labour laws, and the likelihood that these costs will change compulsorily.  Other factors, of course, are those related to the security of the investment, of the senior employees, the extent to which the investment and the investor will be subjected to illegitimate demands by, for example, the tax authorities, the protection against the additional cost elements posed by employment equity (which, in effect, demands that employees may be chosen not only on the basis of their ability to add to the economic effort of the employer, but must also comply with racial and gender limitations), and the need to fund the acquisition of a share in the business (i.e. compulsorily donate) by the members of a particular racial group.  In most of these aspects, South Africa falls woefully short.  The sharp reduction in foreign direct investment in South Africa is testament to this.  This broad trend is likely to increase, with existing privately-owned businesses relocating to neighbouring or other more distant countries, and with a reducing level of new investment by foreign companies in manufacturing in South Africa.

One result of the increasingly difficult problem posed by a rampant trade union movement is the conversion of previously labour intensive activities to automated manufacturing.  Labour effectively prices itself at a level where it is more cost-effective to buy new equipment.  This change, once it has occurred, cannot be reversed.

A Management Consultancy company, active internationally, which has a section specialising in the evaluation of possible locations for the establishment of new manufacturing entities by European and American companies, has, over the past year, assisted in the establishment of new factories with an investment value of several hundred million Dollars, employing nearly a thousand workers.  These plants have been set up in several countries, including, remarkably, California and Britain.  These locations were chosen on the basis of a large number of factors, all relevant to the companies making the investment.  They included overall cost of labour, flexibility of labour, Government policies relevant to the protection of free enterprise, peaceful relationships with potential workers, the even-handed application of clear laws by Government bodies, and several other similar factors.  In each case, South Africa dropped out of the running at an early stage.  The country was simply not able to put up a case to match those of the large number of competing locations!  Application of the Multiplier Effect of job creation, a theory that postulates that each new direct job created results in the creation of several additional jobs in supplier and support activities, would have generated, in the evaluation of the Consultancy, of more than twelve thousand new jobs within a year!

Has the Government heard the story of Harold Mac Millan, the Labour Prime Minister of Great Britain, who came to power with the intention of sharing the prosperity of the nation amongst its people?  He found that his policies were unable to do this, so he settled for sharing the poverty of the nation!

Can South Africa continue to afford the destruction of its economy, the destitution of its people, which is the inevitable result of continued implementation of policies demanded by the Trade Union movement?