Ideologies that harm an economy

Political ideology and a need to stay in favour with voters is placing a burden on the economy and leading to job losses. Dawie Roodt from the Efficiency Group explains how minimum wages and labour laws are hurting the country. Lindi van Rooyen reports.

Ideologies that  harm an economy
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South Africa’s poultry industry can’t compete with cheap imports from Brazil. You believe if Brazilian chicken is cheaper, then it is what we should be eating. But what about the effect on businesses, livelihoods and job creation?
Spending money on an industry that is not productive is the same as saying everyone should be using as much electricity as possible so that Eskom can employ more people. This is just counter-productive. You also can’t have an industry that exists solely to create jobs. I’m not saying we should destroy jobs, but businesses are there to make money, not to employ people. Job creation should not be the aim of any business; it can, at best, be the result of doing well. The reason the poultry industry wants higher import tariffs for chicken is so that it can make more money, not because it wants to ensure employment.

Job creation is an emotional argument it is using to negotiate with politicians to get what it wants. Politicians don’t understand the economy but they want votes, so they will promise jobs even if it is in unproductive industries. There is still room for a poultry industry in SA, but the local chicken will be more expensive and will cater to a market that wants free-range chickens and is prepared to pay for it. A higher tariff on imported chicken means that the consumer pays more and this makes life difficult for the poor. The tariff literally takes food out of their mouths.

Why don’t you support the setting of a minimum wage?
For any economy to grow you need to reach a population dividend. This means women have less children and population growth slows down, so there is less dependence on the state. To reach the population dividend you need to employ and educate more women as this ultimately results in them having fewer children. So it is better for them to be employed at a lower wage than not at all.

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Some workers understand this, as can be seen by the textile workers in Newcastle who burnt down the homes of the union representatives after they negotiated for a higher minimum wage, which led to job losses. Minimum wages result in high unemployment which results in low economic growth. The rate at which we increase our wages is more than the productivity increases. So what happens is, as salaries get too high, people have to be fired and eventually operations need to close down. Workers will also be replaced by machines and farms will be exported to the rest of Africa, and even Australia. We have seen these things happening already.

All we are seeing as a result of higher minimum wages is an increase in unemployment. Farmers that were just surviving have been pushed out and the farms they left behind are getting bigger and wealthier. This results in an even bigger gap between the ‘haves and have nots’. Ironically, SA’s problem is not the income gap between the lowest and highest paid workers but the one between the employed and unemployed.

What is at the crux of SA’s labour problems?
Political ideology is a problem. Most political leaders studied in the Soviet Union so they became socialists. But they don’t understand their own ideology and it is not implemented correctly. The labour value system – where something is worth the amount of time it takes to produce it – that is central to socialism was discredited a long time ago because it doesn’t work. But someone forgot to inform our government.

This socialist ideology has rubbed off onto ANC supporters and it becomes the basis for everything that is done by government. Our history also exacerbates the problem for white farmers. They are seen as the bad guys and the ANC will exploit this idea to gain votes. But just because someone is turning a profit does not mean they need to pay their workers more.

Do you think if government was more capable of providing basic services so that citizens did not have to pay tax and services it is neglecting, there would be a lesser demand for higher wages and social unrest would ease?
Ironically, no. A report by the SA Institute for Race Relations found that it is exactly because of government’s success in delivering services that we are seeing so many strikes. People now have an expectation of getting stuff from government.
Government is worried about the country’s low saving rate. The Chinese, on the other hand, have a high saving rate because they have no security net in place by government.

But as that government is gradually introducing social safety nets, savings are decreasing because the citizens no longer have a reason to save if government will look after them. The ANC is happy to promise citizens that they will receive services because it buys them votes. History shows that after 20 years of liberation, loyalty to the liberating party starts dwindling. At this stage there is still a lot of loyalty towards the ANC but that is definitely changing. There is now a new generation of voters in place that does not have that loyalty.

Do you think South Africans are getting value for money for the taxes they pay?
Most definitely not. The average household with 2,2 children bringing in R1 million per year gets 5c back in goods and services for every R1 they pay in tax. And if they decide to emigrate, then 20 families receiving social grants will be without their money. The poor who are not paying tax are certainly getting value. Typically, it will be a single mother with three children, living with her mother. So the grandmother gets a state pension and the mother gets three child grants. They live in a RDP house provided by the state and go to government hospitals and schools which the taxpayer pays for.

But, as a collective, South Africans are not getting value for money and taxpayers’ money is not spent well. Our civil service, for example, is greatly overpaid as it earns between 30% and 40% more than its peers in the private sector. Taxpayers are starting to show resistance. The opposition to the toll roads in Gauteng is nothing more than a revolt. Taxes collected from individuals and companies are lower than the national budget estimates. I suspect many employees are choosing not to formalise employment agreements because the tax burden is too high. People and businesses are going under the radar.

If working harder is the answer to growing the economy, how can government and businesses get the labour force to do so?
It has to start with the leadership of the country, so I don’t think it will happen soon. The value system in SA has changed vastly from the days where you believed that if you studied and worked hard, you would make it to the top and be rich and successful after a good many years. Now people believe if they want to be rich they must become politicians or at least be closely connected to one. The value system has changed from wealth resulting from hard work and time to connections and positions. But the economy cannot gain from this and everyone is getting tired of it.

What is the single most important thing that government should be doing to boost the economy and agriculture?
The question should rather be: what must government stop doing in order to boost the economy? It should stop putting up barriers to prevent the private sector from generating wealth. This includes putting laws in place that inhibit employment and increase productivity. Government must start providing the necessary infrastructure to ensure that farmers can move their produce. Roads, railways and harbours must be developed and maintained.

With the elections coming up next year, do you think politicking will harm the economy?
The markets shouldn’t react because it’s nothing they haven’t seen before. Unless there are incidences of extreme violence or a significant deviation from policy, like re-opening talks of nationalisation, there shouldn’t be any major changes. However, if it becomes apparent that the ANC will lose, it could have negative repercussions for the markets because it signals instability. And if a political party is backed into a corner, it does stupid things. But if it accepts defeat, it could be better.

Will the rand be able to recover from its current low?
It is quite possible because the current low is not sustainable. The rand is very liquid so it is easy to invest in and the currency is undervalued at the moment and has taken a huge knock. It is not impossible for the rand to temporarily get much stronger again, even as strong as R8 to US$1, this year. But the business confidence index is low and no wonder. Our economy is growing so slowly we are hardly making progress. We don’t produce enough but we are very good at consuming. If this is to be rectified, then government needs to look at improving labour laws and the ease of doing business.

Contact the Efficiency Group on 012 460 9580