The potential for economic change

Posted on October 6, 2014


Once again South Africa is having calls from a number of trade unions for the private sector to exercise “social responsibility” in order to help build “a developmental state”. It is a far cry from 1996 when the combined labour movement presented alternative economic policy proposals.

But trade union leaderships, let alone their members, should be fully aware that social responsibility only forms part of the capitalist system in so far as it affects the bottom line. Reducing profits and shareholder dividends in order to benefit the community only makes sense within the system if doing so boosts later profitability.

It is not just a question of any socially responsible company losing out to competitors and, as a consequence, going bust; it is, in fact, arguably illegal for company directors to prioritise benefits to the community over increasing dividends to shareholders.

A classic court case that underlines this is Dodge versus Ford in the Michigan supreme court in the United States in 1919. This was before the Dodge brothers started making their own cars and were 25 per cent shareholders in the Ford Motor Company.

Henry Ford, a harsh boss who hired and fired at will, still qualified as an enlightened capitalist because he paid over the odds to those who worked for him. He did so because he had virtually no competition and understood that the people who built his cars also bought products made by other workers. The money spent by his workers boosted the earnings of others who would, in turn, buy more products, including cars.

This is the idea of the “virtuous cycle” that owes its origins to one of the founders of free market capitalism, Adam Smith. But, like Smith, Ford never saw the possibility of a world of surpluses, leading to a “vicious cycle” of competition and to the global crisis we now face.

In any event, in 1918, Ford decided to reward his customers by reducing the price of his cars. The Dodge brothers didn’t agree and took Ford to court.

The brothers argued that it was the fiduciary duty of the company to maximise profits to the benefit of shareholders, not customers. The court agreed and higher prices — and profits — were maintained.

That, in a nutshell, is the essence of the system. But, in a parliamentary dispensation where politicians can, to an extent, regulate the economic environment and in which the voting community can exert some pressure, the anarchy of the free market can be constrained to the benefit of workers, the communities they come from and the population at large.

That was the thinking behind the release of the Social Equity and Job Creation document endorsed by the entire labour movement in April 1996. It was here that the unions played a proactive role and produced well-structured arguments. These were based on the idea that redistribution would lead to more jobs and so to economic growth.

But the major federation, the ANC-aligned Cosatu, quickly back-peddled when government introduced its “trickle down” GEAR policy, based on growth leading to redistribution. Since then, and apart from fairly constant sniping at the “neo-liberal nature” of GEAR and the policies that succeeded it, labour has produced no comprehensive economic alternative.

And government, despite numerous protestations about development and beneficiation of mineral resources, has continued to pursue its free market course, in the process, losing advantages previously held. For example, this region contains some 80 per cent of known reserves of both platinum and chromite ore: an extraordinary advantage in a world wanting both.
South Africa also has huge reserves of iron ore and was once the world’s top ferrochrome exporter. And the returns from ferrochrome are more than five times those from the same quantity of chromite ore. But this ore is now being exported in growing quantities to that new major ferrochrome manufacturer, China.
Alternative policies are clearly needed. If Cosatu can overcome its present problems, the labour movement could again put put forward the reformist redistribution leading to growth policies. Within the confines of the national economy this could lead to more jobs and a reduction in the wage and welfare gap.

But this would require planning and regulation at governmental level, anathema to the free marketeers. However, it can be done and with the ANC and government also riddled with ideological fissures, a united labour movement, supported by communities, could signal real change.