Between a rock & a hard place – On South Africa’s strikes, inequality & crisis

Tuesday 16 October 2012
CATEGORY: economy / politics
(8 comments) /
South African income inequality

I’m torn in two by the South African mining strikes.

As I have indicated many times before, South Africa is a desperately unequal society. This inequality is a moral, social and economic problem. On the other hand as I indicated in a recent blog post, South African workers, particularly mine workers are well paid compared to developing country workers. Will our mines survive these strikes?

First you may well wonder why if as I say South African mine workers are comparatively well paid, the country suffers from some of the highest levels of inequality in the world? An enormous part of the SA population is either not working at all, or if they are, they are in the informal economy where wages are low. Some formal workers (some farm workers for example) get paid similar amounts to Indian and Chinese workers (around R1500 per month). So they get much less compared to unionised factory and especially mine workers. Couple this with the high to enormous salaries that skilled workers and executive South Africans get and you get one of the world’s worst income distributions.

This inequality is – to be sure – worse than at the end of apartheid. While 10% of South Africans took 55% of the income in 1994, the top 10% now take 60% of the countries’s income. The bottom 50% of the population take only 8% of the income of South Africa. That number is incidentally the same as during apartheid. So it is the lower middle and upper working classes that have given up 5% of their income to the upper middle and rich 10% of the population.

Why has inequality increased? It’s not just the ANCs fault. During this period increasing inequality was a global phenomena as capital had more opportunity to move freely across the world. It was only a partial free market of course, since labour was not at liberty to move. South African bus drivers were not able to go work in the UK for example, where they would be much better paid.

In this brave new world South African factory workers suddenly found themselves competing with China’s low wage non unionised workers, not only for a share of exports but also domestically (South Africa’s industrial sector was rather incredibly bigger than China’s within living memory). In the Cape for example the large clothing, textile and shoe manufacturing sector was decimated. Factories that produced shoes for the likes of Puma, now only supply the Botswana and South African police rather unsexy military type boots. The mines, in particular the platinum mines were spared this competition, as South Africa has more than 85% of the world’s platinum reserves. This probably explains why South African mine workers have been able to command better salaries than other workers.

Only a few countries managed to be – notable – exceptions from this phenomena of increasing inequality. Brazil being one of them. Where in Brazil good government and clever pro poor policies has not only made it a more equal society without damaging economic growth, in South Africa it is arguable that the mismanagement of government exacerbated these global structural problems. Poor regulation, a lack of investment in research and infrastructure, a long period of denialism on Aids, poor public hospitals and police, and the promotion of workers to jobs to meet racial quotas that were clearly not skilled enough to do the work, has been a drag on South African productivity.

The wealthy and the favoured were in general in a better position to weather these storms. You can buy security and very good health services in South Africa. Pervasive corruption in government and the private sector did not help equality either. And to top it off years of increasingly poor education in state schools are also slowly feeding through the arteries of the body politic and destroying the prospects of a generation of South Africans.

But why then you may ask has the bottom 50% not also given up income to the top 10%? The South African government should be commended that they introduced in the early 2000′s a big social grant program. This serves to keep the wolf from the door for the poorest of the poor. But their prospects have not improved. In fact there is evidence that they are now instead of working as before, dependent on hands outs form the state.

This is a gloomy picture I just painted. Can the invisible hand of the market save us?

Orthodox economic theory will have it that as South African productivity decreases, as its institutions break down and its infrastructure creeks without investment, as it exports less as a percentage of its GDP, as its workers become less healthy and less educated, international markets will react to this. And it will find expression in South Africa’s freely floating currency as less investment money finds its way here. The Rand will fall. This of course will give South African companies a breather and help them to compete against China’s now rising currency.

Sorted.

And true to form, South Africa has found precious little foreign direct investment. Even its mining sector has had a dearth of investment during the commodities boom… But still our currency is strong?!

You see there’s one small problem. South Africa’s Rand happens to be one of the most traded currencies in the world. In the wisdom of our governments slavish adherence to market liberalisation South Africa is apparently more open than other developing countries’ (like India and China) markets.

And our financial sector is sophisticated and developed (A developed financial sector can be a boon and a bain of many a country, as the Brits are now discovering). Because of the financial crisis, but even before then, South African interest rates are higher than in the struggling west (where rates are near zero today). So called hot money, short term inflows looking for a higher return are flooding into South Africa, pushing up the value of the Rand.

So we have a situation where manual labourers that are poorly educated are striking for wages that are effectively £1000′s per month, (or 1200 Euro, $1500). Compare that to salaries in Spain, where a 1000 euros per month is standard wage of the employed for large sectors of the society. Being one of the many so-called mileurista’s used to be a frowned upon ceiling, but now many Spanish can only dream of earning that.

We also have a situation where the top South African CEO’s get salaries in Rand equal to those of CEO’s listed on the UK’s Footsie 100 (and the light touch British business environment was notorious in recent years for its lack of restraint in CEO remuneration). So for example the CEO of MTN gets around £3 million per year, but of course in Rands. Many other top South African CEO’s pocket around £1 million. Our President, meanwhile earns a larger salary than that of the British Prime Minister, the leader of a country with an economy more than six times the size of our own.

In principle I am for South African workers earning more, especially if it helps make for a more equal income distribution in the country. But the important question is, in an economy that is so integrated in the global economy, are these increases sustainable? Even before these strikes South African Gold mines were of the most expensive mines in the world.

To produce a single ounce of gold in South Africa on average costs $958/oz, compared with Australia at $864/oz, North America at $665/oz and Latin America where one ounce can be produced for $563…

I am told that wages make up a large chunk of South African mining costs. For mining companies huge increases in wages would be justified by fewer and better trained miners using better equipment – like in Australia. But that would also require investment in expensive machines and people. It would not surprise me if mines chose to close rather than take this risk. There are less risky opportunities elsewhere.

Conclusion

I have to say my prognosis for South Africa has never been more negative. To solve these problems would require a raft of measures. The problem is that its easy to prescribe policies. But I fear the South African state no longer has the capacity to implement the best laid plans. South Africa needs very many skilled, honest and patriotic bureaucrats, civil servants, teachers, police and health workers to pull it out of the mire. On top of that it needs social solidarity because many – in particularly the wealthy – will need to make sacrifices.

We are I suspect in one of those moments portrayed in Roadrunner cartoons where the cartoon character runs off a cliff but does not fall – at first. Until it realises that it has no terra firma under it. South Africa is just about realising that its left a cliff a few years ago. I fear the fall will be long.

Related deployments:

  1. Are South African miners getting a fair wage?
  2. Can an appeal to socialism help mobilise South Africans against inequality?
  3. Mhambi’s 2008: Twice bitten by South Africa, once comfortably numb
  4. England and South Africa win the Ashes
  5. Zapiro is guilty of being a cartoonist in South Africa

8 Responses

  1. Wil says:

    I have to agree. South Africa is historically a country of hope and despair. Being battered and bruised and in denial at the moment, the comforts of a braai will sooth us and keep us on the knife edge teetering between sport victories or disappointments. Further than that we don’t dare…

  2. Walton says:

    This is a good piece, but I think you’re missing some things.

    Firstly, rock drillers are not “poorly educated manual labourers” – they’re skilled workers doing dangerous jobs.

    Secondly, they don’t earn £1,000 per month. That figure is the cost to company package, which includes the company’s medical aid contribution, pension contribution and so on. Take home pay is between £300 and £400.

    One of the reasons for the big disparity between take home pay and cost to company is the cost of medical aid. The UK has socialised medicine, so the cost of medical care doesn’t come from workers’ salaries or cost to company, except indirectly through taxation.

    Your equivalence with European workers doesn’t hold up, because the £1,000 a UK worker earns – which is close to minimum wage, not a skilled workers’ salary – is take home pay. A skilled operative in the UK would earn more than twice this, and quite possibly three times as much.

    Also, some one supporting a family on £1,000 pm in the UK would be eligible for various forms of state support, including tax credit and housing benefit. Remember also that food is now more expensive in South Africa than in the UK, and SA doesn’t benefit from surplus food recycling centres like Lidl and Aldi, which exist because of Europe’s disproportionate trading power.

    Further, as you know every working person in South Africa supports a number of unemployed family and friends – easily 10-12 people. So they are not ‘well paid’ when you take this into account.

    I understand that the burden of having to support extended families might make mining in South Africa less profitable, but once again that’s a good argument for proper taxation and social welfare.

    At the root of this is the migrant labour system, which was designed to keep black labour far from white cities. The Hut Tax in I think 1917 was used by the British to force black labour into the cities to support the homestead in the rural areas – that is the pattern that still persists.

    It’s a hundred years old and is not sustainable – the working pattern needs to fundamentally change, and workers should be able to get stable employment in the long term (instead of being employed through agencies) that would allow them to settle close to work, bring their families and invest in improving their lives.

    Another factor in the mix is the conspicuous consumption and bling culture in South Africa – I think this causes real resentment from those who are struggling to get by.

    But like you, I am not hopeful. Most people are trying to get onto the rich side of the inequality divide, instead of trying to lessen the gap.

  3. Kameraad Mhambi says:

    Hi Walton, I don’t disagree with what you say.

    In Australia, the bottom rung of the miners get six times what SA’s rock drillers get – and their mines are more profitable. So mine is not an argument against higher pay as such. (There is a downside of course – they have far less miners than South Africa.)

    Mine is an argument for education. Most of the rock drillers might be doing skilled work. But they are often functionally illiterate. If they were not, we could have an industry where miners use sophisticated tech, and could draw larger salaries.

    This is governments fault. As is the fact that we do not have socialised medicine.

    Also to your point, South Africans – that can – pay an inordinate amount of their income for private security that the state does not provide.

    Which is why I argue that South African inequality is not only a moral problem, it is an economic one. Because besides making for an unpleasant place – it makes our economy unproductive and inefficient.

    About migrant labour – I agree that it has a bad legacy. But I’m not sure provinces like the Eastern Cape will appreciate it being scrapped. And it’s one thing not to encourage it. It’s another thing to make rules that miners must be domiciled locally. My understanding is that it also causes miners to effectively create two families, both of whom needs to be cared for. For mining companies it surely must be better to just hire locals? But I don’t know enough about that to comment in detail.

    I think your point about South Africa’s ostentatious materialist culture is the main thing I should have mentioned. Richard Layard’s research has shown how unequal societies are unhappy societies, even if the poor in those countries are relatively richer than in more equal but poorer societies.

  4. Philip says:

    I’m not a skilled economist, but what really bugs me is the following thought:

    If you get a 12% increase (or whatever the number is), but your living expenses also rise by 12%, then you are no better off than before. While big companies may grant increases now, the economy (and big business) will eventually find a way to pass those costs back to the workers in the form of inflation. It’s naive to believe that the people at the top will simply accept a lower real income. It will be passed to the food prices, energy prices, etc, which are the prices that most affects the workers’ budgets. (And inflation obviously also affects the low-income workers in all other sectors, so no wonder it becomes a chain reaction across the whole economy.)

    I understand fully that top management should earn more than the ground-level workers, but what gets to me is the sheer mind-boggling numbers that the CEO’s earn in comparison to the workers. Even most engineers and specialist doctors have never seen so many zeroes in their lives.
    How can one person ever spend so much money in his / her lifetime? (And I view myself as a privileged upper-middle class person).
    I’m not against entrepreneurship or capitalism or free markets, but a huge gap like this should raise alarms.

  5. Lennon says:

    Kameraad,
    have you started censorship now?
    My comment didn’t appear!

  6. Kameraad Mhambi says:

    Hi Lennon, nope I did not censor your comment.

  7. Lennon says:

    …Then it must have been my internet connection or something…

    I just wanted to point out to the fact that South Africa’s mining industry was designed on the intent that masses of workers with a low level of formal education – very poorly paid – will do the hard manual labour.

    That’s a major difference with Australia’s more sophisticated and “efficient” mining sector.

    A socio-politial system that treats it’s workers as citizens will generate another kind of workforce then a system that institutionally under-educates the majority of it’s citizens in order to force them into being cheap human resources of labour.

    Sadly, the situation of the South African mineworkers hasn’t changed as much as it would be healthy for the economy and society.

    I guess turning an economy that was mainly based on super-exploitation of masses of disenfranchised workers into a self-sufficient and modern one which a) can compete globally and b) serves all citizens of SA, will take more effort and expertise than what has been utilised until now by the government.

  8. Frank says:

    thoroughly investigated PBS Frontline documentary from 1994 about the business schemes of the diamond industry:

    http://www.youtube.com/watch?v=s4c1p_DMkIw

    recent interview view Namibian president Pohamba – some of his comments suggest that the sovereign government of Namibia has very little to say when it comes to the extraction and marketing of the natural ressources of their land (eventhough the government co-ops with the private mining industry):
    http://www.youtube.com/watch?v=4pdVrQjuzvE