Monday, August 17, 2015

Retrenchments and the clash of titans

Forging a new understanding between adversaries.

We should be in the middle of a strike season but this has clearly been overwhelmed by what is rapidly becoming a lay-off crisis. While we are heading for a multi-party summit on the issue (see report here) it may be worth reminding ourselves of the inexorable forces confronting us and the need to bury old paradigms.

Involvement by government, organised labour or even employers, either through more controls, mineral license bullying, implied nationalisation, strike threats, exchange rate manipulations, incurring bigger company losses, or disguising inefficiencies through trade barriers, will ultimately have little sustainable effect, perhaps even make matters worse.

Jobs are not created or sustained by governments, companies, capital or labour but by responding to demand reflecting people’s needs and wants. And while there is a mesmerising attraction to the idea of a pure, omnipotent, trustworthy and ultimately benign force that guides transactional correctness, there is a deeper context that cannot be ignored.

A maxim I have often used says “markets are perfect; they will perfectly reflect all our imperfections.” It is dealing with those imperfections that we get stuck in a quagmire of much academic drivel, rhetoric, labels, slogans and populist babble that in itself just drags us deeper into that bog. In the end it is a matter of trust. What or who do we trust more: governments or private enterprise; laws or unfettered competition? And then to what extent?

Whatever we do, we cannot ignore the inexorable and mighty dynamism of markets – that force which gives expression to individual needs, wants, fears, hopes and dreams. It is also the arena where we can create meaning in our lives, where we can express our contribution to others and receive rewards to sustain that contribution. Things start going awry when that arena is seen as an exploitable resource exclusively for self-enrichment and minimum contribution for maximum gain – whether by plutocrats or governments. This destroys the ideal of having markets as unregimented as possible.

Time and again and throughout history we have learned at our peril that trying to ignore market forces, control or manipulate them, comes at a huge price. Demand always remains supreme and the ultimate master. When people want less oil, wells will dry up; when they want fewer commodities, mines will close; when we no longer eat beef, cattle will become displays in a few zoos. And with them will fade into oblivion those thousands of enterprises that rely on them; that serve them. And with them, thousands of jobs.

Stripped of all hypotheses, that is what is confronting our mining, steel and other industries. It makes tragically comical the political and other sideshows of militant arguments either for profit, wage or societal maximum gain. It is sad to see the constant repetition and escalation of labour militancy, falling back on 19th century refrains at a time when faltering demand is causing massive lay-offs.

While some may baulk at the concept of a “war” between labour and capital, there is a stand-off nevertheless. Much of our economic thinking has been based on the supremacy of capital, its revered position as creator of jobs and generator of wealth and prosperity. This thinking expediently ignores the distinction between enterprise and capital, and the important precept that enterprise leads and finance follows. It is in the development of enterprise in response to demand that a partnership can and should be forged between them, moving away from a stance of mutual exploitation.

In a narrow sense of a clash between the titans of capital and labour, the former will always win. It is flexible, mobile and for most part disturbingly aloof to and often individually unaccountable for the consequences of its actions. Organised labour on the other hand is rigid, relatively immobile and enslaved to remuneration or debt. The simple reality is that in a volatile world, inflexible things are the first to break.

In a broader sense, the very battleground that these titans are engaged on are those classic market forces that can quake the earth and reduce them to ashes. When capital has succeeded in reducing labour to a minimum either through financial shenanigans, technology or centralisation of economic power, where will it get the demand from for its products and services? The 21st century monetary aberration of exponentially creating huge amounts of wealth through investment in non-productive assets and into a blocked funnel favouring a few individuals, must also come to an end. May that bubble not burst in my time!

There may be some hope if we toss all of the economic theory that we have clung to over last few decades, especially fanatical adherence to “isms”, and carve a new path that recognises people and individuals and not simply theories and abstracts. Labour and capital have to extricate themselves from self-destructive confrontation; adopt principles of common purpose and common fate at an individual and company level, and prioritise job retention far above job creation and ahead of wage and short term profit maximisation.

Organised labour’s refrain of pointing to the good times and historic profits to support its argument for higher pay is disingenuous at best. If the argument is to have any weight, then they have to accept what is staring them in the face – fortune sharing that adjusts rewards for all to weather storms in bad times and benefit from the good times.

This means linking more directly individual labour rewards to those supreme market forces. Differentiation can be guided by the supply and demand for skills and qualifications, but the rewards themselves have to be linked directly to value added or the wealth created, which is the measured contribution the enterprise has made to others. I have mooted this suggestion on several occasions. (See article here.)

A fundamental principle of free enterprise that will always endure is that tangible wealth can never be sustainably created out of nothing. It has to be based on service to the other.

If all role players can refocus their attention to that, there may be hope for a new economic path in South Africa. If not, it is that principle that will come back to bite us.

Tuesday, August 11, 2015

The faltering middle class

And the rise of the precariat class

It may be one of the more disturbing research findings in a very long time. In a report just released, the Institute of Race Relations not only questions the assumed size of the South Africa middle class, but its potential growth.

The middle class is the backbone of our economy and a faltering in its growth could see the crumbling of an important pillar of economic prospects. It has been a significant force behind the growth of many emerging markets, setting them apart from developed economies until the decline of commodity prices partly blemished these prospects for many countries.

There are many activities that rely on middle class prospects – from an increase in asset values such as shares and property, to prospects for manufacturing, retailing, agriculture and many others. Without a sustained growth in the middle class, the outlook for economic growth generally and employment in particular will be severely dimmed. It will make a complete mockery of any ambitious plans to create jobs or stimulate economic growth.

Assumptions about the size and robustness of the South African middle class are now questioned by the IRR research. There have been estimates that this class could make up some 30% of the South Africa population, but the research paper notes: “perhaps just 1 in 10 South Africans has a solid claim to a middle class standard of living.” And regarding prospects it says “of concern is that South Africa’s weak economic performance is likely to put the brakes on any significant further middle class expansion.”

There has been an increase of about 13% in the last ten years in households spending R10 000 pm or more, but the report cautions that this has not been adjusted for inflation. Even if one accepts that the spending benchmark qualifies for middle class status, and not adjusting for inflation, the size of the South African middle class cannot be more than 20%. The Institute uses a number of other measurements to conclude that this figure is probably 10% or even less. What is also relevant is that there has been a notable shift in the changing balance of income between black and white people. Black South Africans earned just under 122% of the total disposable income earned by whites in 1996. By 2013 this had grown to just under 170%.

In the last 20 years, the growth of the middle class has been strongly supported by public sector employment. More than three out of ten employed South Africans work for the public sector. Between 2006 and 2013, public sector employment rose by nearly 25%, while private sector employment was virtually unchanged. Last year alone public sector employment grew by more than 4%, while private sector employment declined by 1%.

In its comment on the 2015 budget, accounting firm Delloite noted: “one is twice as likely to be employed in the public sector today, as 40 years ago – with little perceived improvement in service delivery, law and order and administration. Our BRICS partners spend on average 25% of their total government expenditure on salaries, by contrast South Africa spends approximately 40% of its budget on salaries, or R450 billion annually. Over the next three years government will spend R4.4 trillion, and approximately R1.8 trillion representing 40%, will be spent on the Public Sector wage bill.”

It’s an orgy that simply has to end and as the IRR report notes: “Government finances are under pressure, meaning the civil service cannot be extended further as a black middle class incubator.”

There’s a far more ominous dimension to a faltering middle class. It is an essential rung in individual progress. It is largely made up of relatively skilled, experienced and educated individuals and is an important catalyst for self-improvement, nurturing aspirations and encouraging the attainment of skills and qualifications. It gives hope of a better tomorrow for the youth, for young adults wanting to start and support a family in the comfort of their own home. There’s an absolute limit to which this rung can be reached through simply demanding increased wages, especially at a time when blue collar (and red overall) work is under siege.

The middle class globally is on the decline, leaving the world with widening income disparities and a polarised society between haves and have-nots. It has given rise to what international labour economist, Guy Standing has termed the “precariat”.

He says: “it is a class in the making, approaching a consciousness of common vulnerability. It consists not just of everybody in insecure jobs – though many are temps, part-timers, in call centres or in outsourced arrangements. The precariat consists of those who feel their lives and identities are made up of disjointed bits, in which they cannot construct a desirable narrative or build a career, combining forms of work and labour, play and leisure in a sustainable way.”

Standing believes the protests spreading across the world are manifestations of the precariat taking shape.

We clearly already have a substantial precariat class in South Africa.


Monday, August 3, 2015

Not letting go

Things we should stay outraged about.

So Nkandla is in the news again (or still!), with politicians across the board joining the longstanding chorus of outrage at the exorbitant cost involved. In an earlier indirectly linked expression of anger, South Africa’s biggest trade union, Numsa, announced plans for a one day national strike against corruption. (See report here). The call came in the same month as the country celebrated the legacy of Nelson Mandela in a widespread outpouring of goodwill and reflects the contrast we often face between active disapproval and tolerance.

There is an indescribable mystical power in the ability to let go. You witness it when you are in the presence of death; when a terminal condition in its final act extinguishes the remaining embers of conscientiousness. There is a near imperceptible moment when that person simply lets go; in an instant ending years of torture and anguish in exchange for deep peace and serenity. Those last hours are the sum total of our lives; the culmination of countless snapshots of the mind’s camera and the last decisive entry into life’s ledger. Embracing them without struggle is the final conquest.

We have been taught over millennia that the ability to let go when faced with something out of our control is strength and not weakness; wisdom, not folly. But at what point does that mean resignation? At what point does it represent premature defeat? At what point does it open the door to needless misfortune? Above all, at what point does it allow the miscreants in our lives, the malevolent actors, to continue to sow their destructive seeds in our passive field of goodwill and indifference?

We have been taught that anger and outrage are poisons that we prepare and swallow ourselves. But they are also weapons of action and resistance and could be the difference between doing something and standing idly by as predators tear our lives apart. This is not about a debilitating obsession with the past, but about confronting a persistent and deliberate repetition of improper behaviour. There are those who have either never possessed or have thrown away their moral compass; have long since learned the art of aloofness; of waiting for things to blow over; of rhino-skinned immunity to the disgust and disdain of their fellow beings, and simply wait for the “robust debate” to calm down before continuing as if nothing had happened.

Numsa’s efforts will no doubt culminate in just another disruptive display of censure, of which we have had many in this country on a wide variety of issues. The weakness lies in confronting an issue rather than the villains themselves. It is not always easy to identify them when accountability is vague and often diverted in occurrences and in large systems; unless one subscribes to conspiracy theories and exposes the hooded rascals exchanging malevolent thoughts in whispered tones and in dim-lit corners of secret and remote venues. But where the results of this iniquity are individually displayed and personified, there should be a sufficiently explicit and maintained outrage to make those involved persistently uncomfortable and ashamed – to the extent of confronting them in public toilets to “pay back the money”.

There are some things that we should be outraged about, and stay outraged until they spur us into action or call to account the perpetrators. At the very least they should not be allowed to embrace a place of comfort in passive approval. Nkandla and corruption are certainly worthy causes of anger. But there are many of them, and you are welcome to give vent to your gripes in the comments.

A pet peeve that I cannot let go of falls under the large umbrella of inequality. Whatever else Nkandla represents, the most profound is iniquitous inequality perpetrated by those who themselves have acknowledged it as one of the critical issues of our time. Inequality is a symptom of many underlying ills, including corruption, maladministration, nepotism, unbridled greed, a broken and abused monetary and economic system and above all repugnant social values. It is always difficult to counter the knee jerk response of detractors that it is simply about envy and resentment.

To be clear, this is not a detraction from classic market logic, or refuting income differentiation as a reward system that at least in part plays a significant role in supporting individual aspirations, progress and prosperity beyond those directly rewarded. It is not that principle that should be attacked, but rather the excessively wide wealth gap resulting from broken markets that no longer reflect real and tangible value that has been created for society as a whole, or systemic loopholes that allow the avarice to accumulate obscene levels of riches.

A perfect display of appropriate outrage was the lambasting by American Senator Bernie Sanders last year of 80 CEO’s who dared preach to the government about deficit reduction. We should have more of that at home. I have on various occasions challenged the rock-star myth behind executive pay in this country. The problem is that the media quickly tires of these things and only occasionally do they make the headlines when spotlighted by a “news-maker”, such as billionaire Johan Rupert’s recent confession of what kept him awake at night. Rupert’s wealth can hardly be defined as “ill-gotten”. By my definition he is one of those business builders that should inspire aspirations and not malicious envy; unlike many of the professional managers heading corporates here and abroad.

Our political leaders can hardly justify standing next to the bishop on income disparities and attacking private sector rewards. There simply is no justification for those leaders to be amongst the highest paid in the world. That’s apart from a bloated political executive and the billions squandered on self-gain acts at all levels of government. That’s what makes Nkandla so significant. Here you have more than R¼bn spent on the comfort and security of one man within sight of abject poverty in a surrounding area. In addition it was funded at least in part by those very people through taxes and VAT, even if only through the latter or through less being spent on their own development.

Yes, we should constantly confront those deserving of it with our outrage. But at the same time, we should also not let go of our demonstration of goodwill, our support for the many laudable NGO’s, NPO’s and activist groups, and the benevolence we are generally capable of.