Job creation is one of the keys to stability in any developing nation. A vast army of unemployed poor has a high potential to turn into a source of violent confrontation with the ‘rich’ and those perceived to be rich. This is clear throughout Africa, and particularly in South Africa, where the ‘revolution’ that brought about democracy was predicated very largely on a redistribution of the wealth from the ‘rich’ to the poor. That rhetoric has been the foundation of many revolutions throughout the ages – the French Revolution, the Russian Revolution, the German Revolution. The reality of these revolutions, however, has universally been that a privileged few, the drivers of the rhetoric, became wealthy beyond imagination, and the bulk of the poor became poorer. In South Africa, the results of the failures of Government have come to the fore, to haunt the proponents of the ‘revolution’, with the poor demanding that the promises now be kept.
The response from the ‘Ruling Party’, in reality an alliance of the ANC, the South African Communist Party and Cosatu, has been as one could have expected, had one not been blinded by the hope of a new, good future for all South Africans. The stakeholders have been protected, with the ‘rights of the workers’ being enhanced in many ways, at the cost of the employers. A minimum wage requirement has been enforced at a level that makes it immediately profitable to replace the low-level jobs with machines, or, where even this is not sufficient, by importing the goods from economies where the rulers have seen the reality that even a poorly paid job is vastly better than no job. Where the job creation policy has failed, the blame is laid at the feet of the ‘capitalist employers’, a term not very far from being a synonym for the ‘Whites’, who are held responsible for everything that has failed under the eighteen-year rule of the Ruling Party. It may be of value to consider some of the elements that are responsible for the failure of the development of the South African economy, a once mighty economic powerhouse, that is now lagging behind its African associates, with a paltry 3% growth in GDP, compared with the 6% or even 8% of several other African countries.
Before we look at some of the major factors, let us consider the players in the Government.
The ANC is a grouping of politically-inspired people, whose initial aim was to redress the wrongs of Apartheid, to ensure that the Black people were permitted to take their rightful position in the country, in every sphere. Unfortunately, the noble aims of the organisation have been hijacked, as in almost every African country that has gained independence from the ‘colonial masters’, and now consists largely of a group of people who are dedicated to self-enrichment, and are prepared to use every means to maximise their personal benefit. As one notable ANC member said, shortly after the new Government came to power, “I did not go into exile so that I could be poor!”
One of the partners that is essential for the ANC to continue its grip on power is the South African Communist Party. The aims and methods of Communists everywhere are clear – they span the poor, the uneducated and the desperate before their wagon. Joe Slovo, a highly esteemed former Leader of the SACP, revealed the strategy of his Party in an interview shortly after the announcement had been made that the Apartheid system was to be dismantled. When asked why the South African Communist Party believed that Communism could work in South Africa when it had been shown so convincingly in every country ruled by Communists that it led inevitably to economic collapse and poverty, he replied “Communism is a system that needs capital to support it. South Africa has that capital.” “But what will happen when that capital is exhausted?” Slovo laughed at the question, as though the answer was self-evident, which, in a way, it was. “Then we’ll go to another system of Government!” was his reply. It is clear that the same thinking still permeates the South African Communist Party. It is not clear to anyone who has witnessed the human degradation that Communism brought to Eastern Europe why anyone would wish to live under such a system, except, perhaps, those who aimed to live in the top one per cent.
The third member of the Tri-Partite Alliance is not, and should not be, a political party. It is Cosatu, the Congress of South African Trade Unions. The main public face of Cosatu is Patrick Craven, an English expatriate, who, apparently, has lived within the cloistered halls of the trade unions for his entire working life. He admitted in a recent radio interview that his monthly salary is ‘about R50 000 per month gross’. No doubt there are other benefits received by him in addition to that salary, but even disregarding the car, the entertainment and travelling allowances and other benefits, this spokesman for the ‘poor’ receives no less than fifty times the monthly income that the President of Cosatu claims is received by more than 60% of the people of South Africa, the people who Cosatu claims to represent (a claim that must be open to question, as most of those people are not members of any trade union and have never voted to give Cosatu that right of representation)! Mr Craven, when asked if he had ever run a business, an experience that might give him some qualification to make pronouncements on matters of economic policy, made a statement that must go down in the annals of trade union blunders. “No, I’ve never run a business. I don’t believe in the capitalistic system. I believe that the employee undertakes a much higher risk than the owner of a business!” He justified this astounding lack of economic understanding by referring to the employees of Aurora Mining, a company partly owned by a son of President Jacob Zuma, which had failed to pay the salaries of its employees while, at the same time, making a donation to the ANC of R! 000 000. This broad generalisation of a very specific set of facts appears to be standard for Cosatu, which often glosses over the real facts, choosing a set of ‘facts’ that appear to support its contentions. When asked what his favourite book was, Mr Craven, after considerable thought, stated that it was Das Kapital, by Karl Marx, a book that laid the foundation for the establishment of numerous Communist States, leading to hundreds of millions of people being thrown into a condition of misery while their political masters lived the high life and experimented with radical, and usually disastrous, ways to solve the problems that their political policies generated. As Mr Craven is the official spokesperson for Cosatu, it is reasonable to assume that his statements reflect accurately the beliefs and policies of Cosatu, with which he declared that he has never been in disagreement.
During a discussion in another radio talkshow about the development of small and micro enterprises to assist the millions of unemployed to enter the modern economy, Mr Irwin Jim, the Secretary General of the National Union of Mineworkers of South Africa, exhorted the Government to compel the establishment of businesses (by White capitalists, presumably) in rural areas, to prevent the need for workers to commute long distances to their places of work. Mr Jim appears not to know that the Apartheid Government implemented exactly such a scheme, with the difference that it realised that compulsion is not possible in the real world. They used, instead, a system of subsidies. This scheme resulted in the expenditure of huge amounts of State funding, attracting many manufacturers who saw the opportunity to farm these subsidies. The businesses were established in remote locations, such as Bronkhorstspruit and Phutaditjahaba, with substantial funding being expended to build the infrastructure needed. Unfortunately, although predictably, when the subsidies were exhausted, the owners of the businesses closed them and departed, taking the very profitable subsidies with them, and leaving behind a destitute shell of a fake economy. This example demonstrates two profound truths. You can’t fight the laws of economics, and even the Apartheid State, with all of the experience of development that it demonstrated, could make extremely stupid decisions.
Several factors are clear to thinking people who have had the opportunity to experience history and to see how the world really works, not just in South Africa. The urge to find an ‘African solution’ to the problems of Africa must be seen for what it is – empty rhetoric. President Thabo Mbeki’s ‘African solution’ to the problem of AIDS resulted in the needless death of many thousands of people while he and his Minister of Health were pursuing their incredibly misguided policies. (The public disapprobrium to this policy was so severe that rumour had it that Mbeki saw AIDS as a possible solution to the growing problem of unemployment!) His ‘African solution’ to the desperate problems of the catastrophic collapse of Zimbabwe under the rule of Robert Mugabe, a policy of ‘quiet diplomacy’, remains ineffective to this day, resulting in millions of Zimbabweans falling into the African poverty trap.
One of the clear problems leading to mass unemployment is the high degree of incompetence in Government at all levels, from the Municipal level, where service delivery failures have led to a situation where the citizens are forced to stage demonstrations to bring their needs to the attention of the rulers, blocking roads, burning tyres and stoning cars as a matter almost of routine, before those responsible recognise that their re-election might be at stake, and forego some of the lucrative corruption in favour of actually spending some of the tax money at their disposal on the purposes for which it was collected. Incompetence is standard in most Government offices, with a generous admixture of corruption. It has become a standard complaint that Departments of Government at all levels fail to comply with contractual and legal obligations, paying trade creditors three to six months late. Under the present structure, it is typically Black-owned small businesses that bear the brunt of non-payment by Government. However, the Government does not discriminate in this practice, not paying salaries to medical personnel for six months, failing to distribute school books to schools until halfway through the school year, and failing to act in a responsible manner in many other ways.
The worst of corruption at the top of politics is that it sets a standard for the ‘ordinary man’. This was brought home to a foreign businessman in a recent discussion with a local regarding the construction of an office building to house his South African branch office. His discussion partner showed him a piece of land that he wanted to buy. He asked whether the land was suitably zoned for the purpose. The answer was that it was not at present, but that presented no difficulty. “I’ll just put R50 000 in cash into the envelope along with my application for rezoning, with a promise of another R50 000 when it is approved.” The foreign businessman decided not to establish a branch office in the country. That discussion was not the sole reason, but it was a clear sign that South Africa is now in the grip of organised crime, and he did not want to expose himself to that regime.
Add to the incompetence and corruption another driver, the Black Empowerment laws. These laws have made the country’s economy less than competitive, in two main ways. First, an investor requires a return on his capital. That return is determined, to a very large extent, by the world market. If 20% is the rate of return available in, say, China or Vietnam, a return of 20% will make South Africa barely competitive, with other factors required to swing the decision in favour of South Africa. The problem now arises that the investor has to give say 51% of his company to a Black shareholder. If the figure is 51%, it means very simply that the required return on the total investment must be over 40,8%! To achieve that, the wages must be lower than in the competing country, the cost of bank borrowings must be lower, the cost of the property on which the investment is realised must be lower, the cost of transport must be lower, or any combination of these and other factors must be present to compensate for the cost of complying with Black empowerment laws. This problem becomes even more acute when the investor is required to employ a percentage of Black persons. The fact that he is obliged to do so implies that he might probably not do so if given a free choice, which, in turn, implies that Black employees are inherently less attractive to employers. This can only arise through lack of capability (arising from poor education or limited experience), dishonesty or some other factor. No sane employer would voluntarily not hire the best employee if given free choice. That implies that the Black employees are not the best employees, and therefore constitute a legally enforced cost load. The reasons for this certainly warrant investigation, but, on personal experience it is possible to say that Black employees are not inherently inferior, provided they have adequate education and appropriate experience, and that brings us back to the education system. And so it goes on.
It is clear that most of the requirements for the decision to invest in development of job-creating industries are not satisfied in South Africa, with the result that South Africa is very quickly deleted from the list of possible investment destinations by a foreign investor. Worse, South African investors are becoming increasingly aware that other countries are possible candidates for their investment Rand. The fact that you live in South Africa is no longer a compelling reason to invest in job-creating business activities in South Africa. Many South African companies have found that South Africa is no longer a good place to base their businesses – witness Old Mutual, Anglo American, Billiton, South Africa Breweries, to name just a few. The policy makers should ask themselves why this is happening. One must ask whether it is more beneficial to have a world business empire based in the country, employing many thousands of people, at all levels of skill, and earning competitive salaries, or to have a very few favoured Comrades becoming ostentatiously wealthy.
Corruption has also become a significant cost of doing business, a cost that must be made up in some way in order to attract an investor to South Africa’s shores. One businessman who needed train transport found that he was unable to get Spoornet to deliver trains on time, as they had undertaken to do. This problem was resolved when he was advised to arrange that a Black Advocate negotiate a resolution to the difficulty. This was achieved within minutes after a fee of R300 000 was paid to the Advocate! Subsequent difficulties were avoided when a Black-owned company was retained to organise the train service, in an effort to generate jobs from the activities of the company. Unfortunately, the Black-owned company failed to pay the cost of the trains to Spoornet, which then refused to supply trains until the debt was paid, regardless of the fact that the businessman proved to Spoornet that the cost had been paid over to the Black-owned company, and that that company’s services had been terminated as a result of its failure to pay Spoornet. The result? The businessman had to pay Spoornet again, doubling the (very high) cost of rail transport. The penultimate insult came when he was informed by Spoornet that they would not supply trains until a new Black-owned company was engaged to negotiate the trains. The work that the Black-owned company did was no more than to receive the bank transfer of the cost of their services every second week, and pay over a part of it to Spoornet. The direct employees of the businessman did everything else required. In case you’re wondering why this was the penultimate act of folly by a Government body, the final act came when the South African Revenue Services imposed a R21 000 000 penalty on the company in respect of ‘unpaid VAT on exports’. Although this claim was totally spurious, the imposition of the demand resulted in the unlawful freezing of the bank accounts of all associated companies by the Reserve Bank, the appointment of the company’s attorney as Collection Agent for SARS (in a clear and clearly unconstitutional attempt preventing the company from obtaining legal representation to fight the fraudulent demand), and a very protracted legal battle with SARS to negate its repeated imposition of penalties. It is of interest to note that the SARS audit staff member who was part of the two-woman team that founded the fraudulent claim subsequently admitted to the businessman that her associate had not read the VAT Act recently, and did not know that the company had acted totally within the Act! The result of this long story was that the foreign investors disposed of their investment in the South African companies, and withdrew their undertaking to fund several other companies. The loss of jobs to South Africa exceeded 250 existing jobs and probably nearly a thousand potential jobs in planned future investments. Using a Multiplier Effect factor of only eight (very low in the context), the actions of the corrupt officials cost South Africa at least 10 000 jobs directly, and incalculably more through the friends and associates of the disaffected foreign investors!
The continuing demands for protectionism raise a question whether the people making the calls, and the policy-makers listening to them, really understand the effect of protectionist measures. In essence, a measure to make imports more expensive, if they succeed in their objectives, create a situation where a few employees obtain jobs while the totality of the consumers, the people who buy the low-cost goods, effectively ‘pay’ a tax equal to the higher selling price. This may be justifiable if the primary objective of the protectionist measure is to allow the industry the opportunity to establish itself in the face of unfair competition, with a subsequent reversion to free market conditions. In most cases, unfortunately, the protection is put in place to support industries that have no economic justification for their existence. The alternative to protection? A country that has a high total cost of labour – including wages and taxes and levies on such wages and costs associated with the employment – must offer a high productivity of labour and capital. If it cannot, it has no place in the world market, and will soon become irrelevant. Of course, a high productivity of labour requires many factors, including a good educational system, a low level of intervention by outside bodies such as trades unions, a labour relations system which does not encourage unwarranted disputes, a competent support system to assist employers to upgrade the quality of their existing labour, a low rate of add-on costs of employment in the broadest sense, and many others. The worst of these conditions are present in South Africa. The labour relations system is extremely confrontational, exacerbated by the rhetoric of the trade unions and the political spokesmen who have taken a very clear stance against capitalists and employers (remember Craven’s remark that employers carry much less risk than employees!), a legal system that encourages ex-employees to take legal action to extort huge sums from the employers, regardless of the rightness or otherwise of their claim (a discharged employee of the abovementioned businessman instituted a claim for three years salary, alleging wrongful dismissal from his job as Manager, noting on his CCMA claim form that the reason for his dismissal was ‘dishonesty’!), and many small employers have engaged the services of a Human Relations Consultant, at high cost, to help them navigate the minefield of the employment legislation and regulations. Employees have been encouraged to believe that they have a right to a job, regardless of qualification or competence, and a right to a ‘decent wage’, a compensation that very often has no relationship to the value of the work they perform.
The Government, in its drive to support the ‘poorest of the poor’, or, perhaps, to fund the increasingly large contracts in which their favoured few have a stake, are on a desperate drive to collect as much tax as possible. Pravin Gordhan, the Minister of Finance, announced very proudly in his Budget speech that the Budget now exceeded one trillion Rand. He spoke as though this was an achievement. The politicians should be made aware that tax is destructive of economic activity. It deprives the society of funds that could be invested most efficiently in the generation of a vibrant economy, and applies them to purposes that are, almost by definition, economically less efficient. There are certain expenditures that are necessary, but the vast bulk of public expenditure is inefficient in economic terms. That perfect example of an efficient economy, Hong Kong before the hand-back to China, was a small country with a huge economy. And the maximum rate of tax was 12%! The drive to collect taxes, often in dishonest ways, has had a powerful effect in driving investors and jobs, and skills, away from South Africa. The best way to deal with the ‘poorest of the poor’ is not to hand out long-term dole payments, but to create an environment in which employment and the creation of businesses is encouraged, not to build thousands of low-quality housing to accommodate the starving masses, but to build low-rent small factory buildings and fund the working capital necessary to enable the establishment of thousands of small industries. Give a man a fish, and you have fed him for a day. Teach him how to fish, and you have fed him for life!
A very significant way in which job creation has been discouraged and inhibited since 1994 is the dismantlement of many of the essential components of job creation and technological development. Included in these are the Teachers Training Colleges, the Nurses Training College, the Agricultural Colleges, the apprenticeship system and centres of excellence such as the Atomic Energy Corporation. Add to that, the dismantlement of the efficient management of many of the Departments and instruments of State in favour of cadre deployment. In this way, the experience of years, a vital element for the efficient operation of the complexities of the State, were thrown out the window, with the new incumbents and institution prone to implementing new ways, untested and often unproven ways, very often simply on the basis that the new ways were not the ways that the hated Apartheid Government applied. The disastrous performance of the Department of Education in the Outcomes-Based System highlights this, but it was very far from the only State-sponsored disaster. Eskom is another of the many examples. The Government even now admits readily that it has made serious mistakes in much of what it has done. The 2011 State of the Nation Address discussion by Jacob Zuma was a litany of errors and non-achievement, with the repeated excuse that the Government has now recognised its mistakes and is implementing changes to ensure that the errors are corrected. Unfortunately, it is not apparent that any of these changes is actually working, and there is some doubt whether they have in fact been implemented, or the failures are merely being papered over. Just recently, the Minister of Agriculture, in a noteworthily racist discussion in a radio interview, admitted that the Department of Agriculture had badly neglected the Agricultural Colleges ‘over the past eighteen years’, which should have played a material role in the generation of agricultural capability in the country. (The Minister made a number of comments derogatory to the White farmers, stating that she was able to name a couple of Black farmers who have made strides in becoming effective farmers. A couple of Black farmers can certainly not be considered to be a counter to the large numbers of White farmers who have left the country in the wake of Government antipathy towards them and the failure of the Police to protect them against anti-farmer crime – the number of farmers in South Africa has reduced from over 50 000 to about 32 000 under the present Government, and the number of farmer murders continues at about three per day!) One may be permitted to wonder why it has taken eighteen years to recognise that education and training are vital in any modern enterprise.
The lack of effective law enforcement remains a continuing problem, creating a background of criminality and cost of doing business in South Africa. One often gets the impression that the Police Force is using its powers to harass certain citizens at the behest of connected parties, chasing spurious claims against these persons while totally neglecting their duties in other cases. It is very rare that one finds a citizen who expresses satisfaction with the performance of the South African Police. Perhaps this is a function of the history of crooked Policemen at the top, a history that presently seems to be repeating. This is not merely a cause of friction at the local job-creation level. It is a factor that is discussed by potential investors in South Africa, and the continuing evidence of the growth of organised crime is a strong disincentive for the investment by foreigners in South Africa.
Finally, the role of Cosatu cannot be ignored. The special role that it occupies at the centre of political decision-making gives it an enormous power without any corresponding responsibility. The voters do not elect the Cosatu representatives, yet they are directly affected by Cosatu policies and decisions. Cosatu has an accountability, if, indeed there is one, only to its members, a group that is very much smaller than that of the major political parties. It has no political rights. This consideration becomes critical in a consideration of the creation of jobs. Cosatu’s prime objective is to maximise the benefits paid to its members, who include only some of the employed of the country. It achieves its goals by ensuring that no other workers are available – even at the trade union level, the laws of supply and demand are active. The interests of Cosatu are therefore best served by limiting the creation of employment of people who will not become part of its constituency. The ANC would be well advised to consider the vast majority of the population who are not members of Cosatu.
