Will government’s plans get off the ground?

A comprehensive social compact demanding commitment and sacrifices by all South Africans and sectors is crucial for the success of government’s newly announced economic growth path. Will it work, or is it already doomed to failure?

When government announced its new economic growth path last week it did so in the belief that its success hinges on the commitment by all South Africans to forge a new social compact, working together and making sacrifices to create ideal conditions for job-creating, poverty-eliminating economic growth.

However, Finance Minister Pravin Gordhan had hardly finished elaborating on these issues when presenting his Medium Term Budget Policy Statement (MTBPS) in Parliament, when two days later the envisaged social accord already faced the apparent intransigence of some of the social players called upon.

The most prominent objection came from labour which said it would not accede to calls for wage restraints on the part of workers in order for the social compact to work.

Closer analysis shows that not only labour, but government and business too – among others – will have to make specific sacrifices and significant paradigm shifts in their thinking if the social compact, and the new growth path, are not to be still-born.

It is, however not the issues at stake that are new, but rather the way in which they are tackled if government’s plan is to succeed.

The idea of a social accord  is not altogether new. In fact it is the very reason for the existence of a body like the National Economic Development and Labour Council (Nedlac) and it also informed much of the economic thinking under former Finance Minister Trevor Manuel and former President Thabo Mbeki.

Just last week the Congress of South African Trade Unions (Cosatu) hosted a conference of 56 civil society organisations wanting to revive the pressure role of the erstwhile United Democratic Front (UDF) and push for economic policy reforms. This formation could well become an important player in any social-accord type developments.

Gordhan’s role

But, it is essentially current Finance Minister Gordhan whose recent career has been focused around such a concept and who is now striving – with his expanded powers as finance minister – to take this concept to the next level as the basic driver of future economic growth in South Africa.

It was during his stint as Commissioner of the South African Revenue Service (SARS) that Gordhan endeavoured to create a new relationship between citizen and state for the common good, advocating citizens’ honesty, responsibility and commitment in tax obligations. This allowed for substantially increased revenue collections, which in turn allowed for massively expanded expenditure on social services, welfare and infrastructure without incurring new debts.

Now, as shown in the MTBPS, Gordhan wants to employ the same social accord concept in a far broader context that requires specific commitments and sacrifices of government, labour, business and citizens across the board to boost accelerated economic growth that must create, among other things, five million new jobs and wipe out inequality and poverty.

In his MTBPS Gordhan said “South Africans have a special opportunity to forge a broad-based social compact aimed at facilitating effective partnerships between government, business, labour, communities and civil society in pursuit of common goals”. He added that it was not simply another plan, but was something needed to ensure the radical transformation of South Africa’s economy. It has to be a plan to which every South African contributes.

To spread the burden to all social players, Government has to deal with inefficiency and corruption, especially in relation to the state’s procurement system. All departments face a review regarding their efficiency and capacity. Transparency will be increased and so will punishment for transgressions.

Government policies, said Gordhan, will have to create a favourable environment for investment and productive growth by removing obstacles to trade, reducing red tape, lowering the cost of doing business, containing the heavily inflationary state wage bill, providing quality public services, increasing competition and removing entry barriers, expanding exports and encouraging youth employment, providing better-quality education and improved skills development, increasing retirement savings, and introducing reforms to production and labour markets to promote efficiency and boost employment among other things.

Organised labour will be called upon to show restraint with wage demands, increase productivity and to accept a youth wage subsidy and relaxation of labour legislation to boost youth employment. Treasury thinking is largely centred on a need for wage restraint and greater flexibility in collective bargaining agreements.

However, Gordhan made it clear that direct state intervention is not the answer and that the private sector will have to play a major role, especially in  cutting unemployment from 25% to 10% and creating five million new jobs. Business is being asked to enforce price restraints, raise competitiveness, expand competition, and  improve productivity and production.

Expanded competition is also to be extended to state-owned enterprises, with especially Transnet and Eskom being targeted.

Individual South Africans whom Gordhan applauded in his MTBPS for respecting “their side of the social contract which has allowed us to continue our vital social and infrastructural investment” will be called upon to strengthen even more the culture of tax compliance and commit themselves in other areas.

Government endorsement

President Jacob Zuma and his Cabinet – and by implication the National Executive Committee of the ruling African National Congress - last week endorsed this plan. What was significant is the fact that representatives of opposing policy factions within the ruling alliance led by the ANC were all – apparently - on the same page. Gordhan, the likely architect of much of the new growth path, has in the past been indirectly accused by Cosatu and others on the left of being the servant and guardian of the “neo-liberal” policies of Manuel and Mbeki.

But, in full agreement with Gordhan and the fundamentals of the envisaged growth path last Monday when it was announced, were the left wing’s representatives in government such as Trade and Industry Minister Rob Davies, Higher Education Minister and SA Communist Party (SACP) boss Blade Nzimande and former Cosatu trade unionist and now Economic Development Minister, Ebrahim Patel. Patel was quoted by the Mail & Guardian as saying that Cosatu and business concerns were both considered in putting the growth-path policy together and that both constituencies were viewed as vital to its success.

"The details of what all constituencies, including government, will need to do differently will be the subject of detailed and focused social dialogue,” Patel added.

Therein lies the sting.

Cosatu immediately rejected the growth plan as a neo-liberal strategy doomed to failure on the job creation and poverty reduction aspects. It objected to not having been consulted on the plan and rejected the calls for wage restraints.

Cosatu general secretary Zwelinzima Vavi was quoted saying: “Cosatu will not sign any social pact that will introduce wage moderation as another way of helping to create jobs, as proposed in Gordhan's mini budget statement.  We can never, ever co-operate with anything that calls for moderation of workers' salaries. We will remain militant; we will continue to demand better wages."

Another major trade union federation, the Federation of Unions of South Africa (Fedusa), welcomed the new growth path plan and applauded Minister Patel’s part in its drafting in respect of combating unemployment. But the federation’s general secretary, Dennis George, also raised concerns over the call for wage constraints calling it “an extremely high price to pay”.

Labour, especially Cosatu, is also likely to continue resisting the call for flexibility and a two-tier approach to allow increased youth employment, among other things.

The question is, however, whether the unions are fully in touch with the views of ordinary workers. For instance, in KwaZulu-Natal workers have openly challenged their union bosses with aggressive demands that their Chinese employers in the clothing and textile sector be allowed to pay workers below sectoral minimum wage levels rather than losing their jobs.

In the education and health sectors the opposite recently occurred when workers accused their union bosses of selling out by accepting lower than demanded wage increases. These are difficult divides that will have to be bridged.

According to Cosatu national president Sdumo Dlamini labour is still hoping that government will include the left wing’s proposals that include doing away with inflation targeting, reviewing the SA Reserve Bank’s mandate, direct intervention in the strength of the rand, and direct state intervention in strategic economic sectors.

While Cosatu says government will have no hope of creating five million new jobs in 10 years if these demands were not met and fiscal and monetary policies did not change, the Treasury believes that growth will achieve that in itself. Gordhan claimed last week that 7% growth for 10 years will double national income and create five million jobs. This is another major divide that has to be overcome.

However, the good news for Gordhan’s plan is that at least all sectors – business, government and labour – agree that faster job growth is the magic ingredient needed to recover fully from the recession and achieve sustainable growth for the long term. It is not the goal that divides them, but the way in which to achieve it.

However, there are other divisive issues that also have to be overcome, many of them driven by factional agendas and power struggles within the ruling alliance itself, such as the ANC Youth League’s hotly debated call for the nationalisation of the mines and Cosatu’s call for government to act decisively against corruption, self-enrichment and greed in government circles.

While government is calling on workers to soften their wage demands and consumers to act more responsibly, for instance, there is a strong perception that government is not willing to practice what it preaches. Fedusa’s George says the sacrifice workers are being asked to make is a high price and that government’s proposal should rather focus on the exorbitant salaries and benefits paid to CEOs and senior managers.

The repeated calls by Cosatu’s Vavi on President Zuma to curb excessive government spending, corruption and greed are also well-recorded. They are apparently, falling on deaf ears.

So too are Cosatu’s objections to the spoils being amassed by a small elite from the government-imposed black economic empowerment (BEE). Government ministers still waste money and engage in highly questionable luxury spending on, for example, cars, travel and hotel accommodation. The ANC-connected nouveau rich continue to flash their ill-begotten and BEE gains with excessive actions like the recent R700,000 birthday party of a businessman attended by the likes of the ANC Youth League’s Julius Malema and Floyd Shivambu among others.

Meanwhile in the private sector excessive remuneration packages for some executives, profit-motivated speculation practices, cartels and collusion, unrestrained price increases and many other ills also continue unchecked.

The chances of success for Gordhan’s social contract, it therefore seems, will be highly dependent on, among other things, firstly a sustainable solution being found to the political conflict within the ANC-led ruling alliance, secondly all the social players re-examining their own positions, and thirdly the broad South African society in general changing its mindset altogether.

That is what Gordhan envisages in the great social debate that lies ahead for filling in the details of the envisaged social accord. But it is also that which means change – and therefore growth – is  a long way off.