Amandla! (A!): COSATU has drafted its Economic Growth Path for full employment and government has published its New Growth Plan. Where do you see the debate on economic policy going in this country, and do you see any major shifts towards more distributive policies?
Chris Malikane (CM): The debate on economic policy is going nowhere. There is a stalemate. My view is that this is not a stalemate based on technical arguments; rather it is a political stalemate. That is why in the COSATU Secretariat report to the Central Committee, it was mentioned that there is a need for a political resolution. However, this political resolution is impossible without two inter-related things: a) raising the political consciousness of the working class so that it becomes a cohesive political force; b) mass mobilisation of the working class on the ground with a view to taking workers to the streets in order to break the stalemate. The working class needs to ensure that changes to its policy are the product of its struggles and not a result of dexterous manoeuvring by its negotiators behind closed boardroom doors.
I do not see major shifts to more redistributive policies. There is no major tax reform, nor any new major regulatory interventions, except the ones that are likely to hurt workers, such as the intended labour market reforms. There are moves on the sidelines, though, such as the NHI and the gradual introduction of free education. But these two are likely to be limited in their redistributive impulse. The reason is that we know that ultimately, whether a policy is redistributive or not, depends on the burden of financing. Will the financing be borne by the working class (including sections of what we would called the middle strata) or the capitalist class? I suspect that given the balance of class forces – the previously mentioned stalemate – the capitalist class will not finance the stuff. Any increase in taxation, will fall on the middle strata because they are organisationally and ideologically weak. I also suspect high income-earning sections of the working class will also foot the bill.
A!: Clearly, the crisis of unemployment has to be at the centre of any alternative political economic strategy. How do you respond to the arguments made by Adcorp, the CDE etc., that the lack of flexible labour and high wages are the source of the unemployment problem in South Africa?
CM: I think that these institutions have a very flawed understanding of how markets work. They do not seem to understand that the very forces of capitalist accumulation generate high unemployment. For example, the analysis that Marx makes in Chapter 25 of Capital I on the effects of capital accumulation when the organic composition is rising shows us how the capitalist forces of supply and demand are shaped by this process. You will not get such a type of analysis from Adcorp and CDE because they are fixated on depressing wages – they always think wages are not low enough.
In terms of labour market rigidity, the claim is also false. Over the years there has been an increase in casual labour. They speak as if globalisation and neoliberalism had no impact whatsoever in South Africa. If indeed labour markets are rigid, why then did the labour share fall so dramatically after 1994? It simply does not make sense. In any event, the crisis of unemployment started in the 1970s and took on a more monstrous character in the 1980s.
A!: In your view, what are the key macroeconomic policies and initiatives that the government needs to take in order to address unemployment?
CM: Firstly, abandon inflation targeting. This monetarist policy is premised on the assumption that reducing inflation has no effect on long-run unemployment, which is not true. Secondly, it is premised on the notion that the nominal interest rate has no effect on real variables such as growth and unemployment, which is not true. Monetary policy must regulate the financial sector, so that it channels credit to developmental purposes. In addition there is a need to have exchange controls and taxes of financial transactions and financial activity. In short we need a more activist central bank than we currently have.
Fiscal policy must be more redistributive. We need a radical reform of the tax system, to cut the fat at the top, and a more aggressive structure that encourages re-investment of profits in the means of production and in skilling the labour force. The tax system must be used to encourage rural development and firms to locate in historically black neighbourhoods. Procurement will have to be targeted to support domestic industry, including those firms that are in rural areas.
Then and perhaps more importantly, the state will have to create direct employment. We have proposed the employer-of-last-resort, which we think is a perfect mechanism to directly deal with structural unemployment. You only have to look at statistics contained in our growth path document on the opportunities for massive infrastructure development and maintenance, road-works, rail system, water infrastructure, irrigation system, waste management and recycling, housing, etc. Then there are even greater numbers of jobs that can be created to deliver basic services such as healthcare, education (including adult basic education in communities – the night schools), early childhood development and all sorts of critical work in communities that contribute to social cohesion. But then, some ill-informed economists started talking about costs, when the highest cost is a youth that is being wasted every day.
A!: What are your concerns with the wage subsidies scheme and how can they be addressed?
CM: The flaw with wage subsidy is that it assumes the main problem is that wages of young people are above their productivity. This is not true. Firstly, as has been noted in our document, about 60% of the labour force earns less than R800 a month. In the central committee report, we note that wages for young people without tertiary education are less than R1 500. The question is, How low do you want wages to be? If you look at what the DA proposes in the case of the Newcastle affair, it amounts to employers having to pay less than R5 per day.
Secondly, there is likely to be huge displacement of permanent workers by young temporary workers who could be fired at will by employers. The reason for this is not hard to see. These young people are unskilled, and the bulk, more than two thirds of the work force, is engaged in unskilled labour. If, as a capitalist, you were told of this subsidy, you would not hesitate to give out voluntary severance packages, or to engage in constructive dismissals.
Thirdly, even when these young people are employed, what is likely to end up happening, especially given the racist nature of South African workplace, is for firms to pocket the subsidy and not pass it on to young people. But also, these young people, a significant number of them do not even have Standard 9, so it is likely that firms, if they take them, will be on the basis of the most rudimentary functions, with limited through-put when it comes to training and career-pathing.
Fourthly, this essentially creates a two-tier labour market system, where one part, which is likely to be almost half of the workforce if not more, given the unemployment rate and the already casualised workers, is highly flexible, and precarious and another relatively secure. This does not bode well for the creation of decent work.
Fifthly, and linked to the above, is that the wage subsidy will depress real wages and worsen income inequality, especially because these young people will be unable to organise. So, there is a serious political economy to it, aimed at weakening the power of the working class over time. It is essentially Thatcherism, especially when you look at the proposal within the context of the broad set of reforms proposed by the OECD and the like.
The whole issue of the wage subsidy is a diversion from dealing with the structure of the economy and ensuring that the state intervenes to do what it is supposed to do. Anyway, the fact that the state is reluctant to intervene directly and still relies on market forces is in itself a class position.
A!: Could you elaborate on COSATU’s proposal regarding the Employer of Last Resort programme (ELR)?
CM: Basically, everybody who is willing and able to work registers in the nearest municipal office. There needs to be an information system to capture the data. The state identifies a set of programmes, from infrastructure to service delivery, that should be implemented. A minimum wage in line with the skill of the person is set, and people are employed by the state programme. They may be deployed around the municipality or elsewhere, where openings exist. Because this is a minimum wage programme, beneficiaries may be allowed access to free public transport and other services.
The whole idea is this: once you are drafted in the programme, you work for six months or so and, depending on your dedication, you then are allocated a Further Education Training course in which you study to improve your skills, and get back into the programme if you cannot find employment elsewhere. The programme should be about employment protection, skills preservation and social cohesion. The minimum wage blocks people from falling into zero wage, which is unemployment, and it is set in such a way that people have an incentive to move out.
Many economists oppose this programme on the ground that the minimum wage will drag down the rest of the wages in the economy. But that is not true, otherwise sectoral minimum wages would have long ago drawn down wages in the sectors. The benefit of the programme is that it is a powerful stabilisation mechanism on aggregate demand, and will almost certainly support massive economic growth. Instead of the growth cycle being controlled through unemployment, the system would now stabilise the cycle through an expansion and contraction of the (ELR pool. The bourgeoisie are of course scared of this proposal because it will limit its power to control workers through unemployment, as Marx said in Chapter 25 of Capital I.
As I mentioned before, there is nothing as costly at 36% unemployment, mostly of young people, 60% of whom have not worked in the past five years. It is a disaster and a colossal waste of human beings.
A!: The government has begun to introduce the Community Work Programme (CWP). According to reports, they have already employed 90 000 people and are aiming to expand it to 1 million. What is your view on the CWP and is there a threat that this will introduce different tiers within the labour market (and thereby increase labour flexibility, etc.)?
The CWP is an important intervention. But I am not sure how much of it includes tenders; there should be no tenders. CWP is an aspect of the ELR. It must be expanded indeed, but it has to contain strong skills development and training. But also, CWP or the Enhanced Public Works programme (EPWP), or anything like that, need to provide permanent employment. Without this, its effects might be extremely limited.
The CWP is not a threat. As I mentioned before, the minimum wage of the CWP should be structured along various lines, skills, experience, etc. Broadly, as I said before, if it were a threat, then minimum wages at sector-level are a threat, which would not make sense. The nice thing about CWP- and ELR-type interventions is that they are stable and secure, and they by nature allow workers to form trade unions. So, for example, the National Union of Mineworkers (NUM) can organise construction workers in both the ELR and non-ELR sectors, thereby increasing the overall power of workers in the process. But other interventions, such as wage-subsidies accompanied by the possibility of being fired any time, make the conditions for workers extremely precarious.