Business shoots itself in the wages foot

Posted on August 31, 2014


The opening salvoes have again been fired in another round in the war about a national minimum wage. And on both sides there are accusations of the selective choice of research to bolster arguments.

It is certainly true that there is a substantial body of data available that can be used by either side. But most of the data used by those opposing the idea tends to deal with the introduction of a minimum wage in isolation from other necessary interventions. Yet additional interventions are usually called for by supporters.

This was summed up in a recent article by Neil Coleman, the strategies co-ordinator in the Cosatu secretariat. He pointed out that a decent minimum wage would increase demand and so play a role in economic development, but only “if combined with appropriate industrial and investment policies”.

One desired effect would also be to compress the current, obscenely large, wage gap. And the introduction of a “floor level” living wage would not, in itself, do that.

This is a crucial point and it is one that tends to be ignored by opponents in business because they do not want what they see as greater intervention in what is, in effect, the anarchy of the market. In this increasingly intense, dog-eat-dog environment, any increase in the cost of doing business is seen as a threat.

Wages are usually the biggest cost factor in business. But they also constitute the national income and provide the wherewithall that enables business to function because wage earners are also consumers.

The more money workers have to spend, the more products and services they will buy. Even Adam Smith, the father of liberal economics noted: “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer”

But then Smith, much lauded by “free market” supporters, thought that supply and demand would somehow miraculously balance. He did not understand that a system based on competition in the pursuit of profit would result in the absurd situation of global over capacity and over production.

This is a fact that most economists and trade unions have also still not taken fully into account. And yet it lies at the core of the current and ongoing economic crisis.

The fact that in South Africa we have a declining manufacturing base can be attributed to this. Across various sectors, the local capacity to produce has been eroded by cheaper — often subsidised — imports in a world still awash with surpluses.

And this in a country without an adequate social security net and where at least half of the national workforce earns less than R3 100 a month. Perhaps as many as a third of men and women in work earn less than R2 000 a month.

Yet most trade unions and human rights groups estimate that a bare living wage in 2014 would be between R4 000 and R5 000 a month. One of the simple — some say simplistic — arguments against a minimum wage is that the additional cost to business will be passed on to consumers. This, in turn, would result in rising costs across the board, and minimum wage earners would fall back into poverty.

Such a scenario is quite feasible if a reasonable minimum wage was to be introduced into the present system without any other measures. If , for example, a minimum wage lifted large numbers of men and women out of poverty, but the increased demands for goods boosted mainly imported items, this would be doubly worrying.

Today, the ANC is committed to supporting a national minimum wage and government has has virtual alphabet soup of policy acronyms such as NDP (National Development Plan), NIP (National Infrastructure Plan), NGP (New Growth Path), IPAP (Industrial Policy Action Plan) and the MTSF (Medium-Term Strategic Framework).

However, critics point out that, either individually or in combination, these plans and policies are still based on the same failed (neo) liberal theories. And there is no serious attempt to introduce, not only a national minimum wage, but also labour-based employment to provide the vast army of the unemployed with work at a decent wage.

Yet without a radical change in policies and more work with decent pay, the social fabric of the country will continue to fray and tear.