South Africa's labour market regulation - too much worker-bias

South African business has experienced tightening labour-market constraints as the balance of economic power shifted from employers towards employees after the 1994 elections. New labour laws introduced by labour minister Tito Mboweni have been biting. The Labour Relations Act, Basic Conditions of Employment Act, Employment Equity Act, and Skills Development Act and their regulations are being implemented and, for good or ill, they are having an ever-increasing impact on employers' former autonomy to pursue their shareholders' self-interest.

Cosatu regularly quotes the International Labour Organisation (ILO) that our labour market is not particularly highly regulated, and in comparison with many developed OECD countries this may be the case. The ILO's 1999 Report on Social Consequences of Globalisation in South Africa is unequivocal that "the South African labour market is extremely flexible and no evidence exists that a further relaxation of employment conditions and labour laws will create more jobs."

Yet apparently South Africa complies (on paper) better than any other country with ILO standards, though enforcement is proving difficult or impossible. Perhaps, then, Police Commissioner Selebi could improve perceptions by promising to enforce labour legislation in the way he is enforcing our anti-smoking law, another world-beater in complying (on paper) with World Health Organisation wishes.

ILO director-general Juan Somavia warned the planet last year that "we cannot continue down the track of increasingly deregulated national economies towards a growing unregulated global economy", and the ILO's 'World Employment Report 2001' claims that "a passive policy stance that leaves to markets alone the direction of change will reinforce divides." But, in pursuit of union self-interest, it is "international labour" that promotes such divides.

Example: one ILO position is that "strike action should be legitimised when spawned by a desire to defend social and economic interests." And in early 2000 our Labour Relations Act spawned a Labour Appeal Court ruling that striking workers - even those involved in illegal action - must be given a hearing before they are dismissed. We should contrast such pro-workerist law with the real world in which journalist Stephen Mulholland's American businessman friend commented that if he couldn't fire he wouldn't hire - "I'm not marrying them; I'm employing them."

The informal sector of an economy may be able to survive and prosper, as notably in Italy, in sublime disregard of labour legislation. A homegrown South African initiative to promote individual employment contracts, which can allow “contracting out” from the benefits of the various labour laws, also offers some hope as a possible constitutional bypass of the current problem. But for years foreign and local advice to the government has been to dramatically reduce labour market rigidities in the crucial economic sector of formal and law-abiding employment contracts. Most recently, a World Bank discussion paper on 'Policies to promote growth and employment in SA' suggests inter alia that government should ease labour laws for flexibility, exempt youth and high-unemployment areas from certain labour laws, and reconsider plans to extend minimum wages to agricultural and domestic workers.
Yet despite endless cabinet promises, the ministry of labour's "fine-tuning" amendments to only three labour laws will satisfy no-one except the unions. On balance they further strengthened job security, tipping the balance still more towards employees. South Africa's labour market flexibility seems set to keep declining.

In a rich, developed country such as France, Germany or Italy, such a bias may correctly reflect the electorate's short-term preference for job security over rapid economic growth. Europeans need only decide how much welfarism to sacrifice to keep up with competition from the more robust British and American economies, whereas South Africa has to come up fast from behind by urgently kick-starting investment and rapid economic growth in competition with many hungry nations. One huge comparative advantage a developing nation can offer is its cheap, flexible and productive workforce. South Africa is not yet offering this.

The new comprehensive Index of Economic Freedom, contained in the 2001 Annual Report co-published by the Free Market Foundation, rates South Africa 30th along with Bolivia, the Philippines and Thailand, above countries such as France, Greece, Hungary, Italy, Peru and South Korea. Among the seven broad areas covered by the index, and perhaps counter-intuitively, South Africa is rated as high as 27th in the area of regulation of labour markets, far more free than Italy (54th), France (57th) and Germany (58th). For rapid economic growth South Africa nevertheless needs to rate much higher on this particular measure.

Source:Dr Jim Harris is a freelance researcher and journalist. He maintains the Privatisation Update which appears under Publications on this website. This article may be republished without prior consent but with acknowledgement. The patrons, council and members of the Free Market Foundation do not necessarily agree with the views expressed in the article.


FMF\11 September 2001