DONALD MACKAY: Cosatu needs to stop shouting and provide practical means to cut unemployment

I’m interested in how business responds to the DA’s economic plan. I hope it’s a little more measured than the shallow response from union federation Cosatu’s parliamentary co-ordinator and acting national spokesperson, Matthew Parks.

Let's assume both the DA and Cosatu would like to see far more people employed in SA. The question is how to get there. Parks recently argued that the DA “hates workers and wants them to be treated like slaves.” If we follow this logic Parks hates unemployed people and wants them never to have jobs.

We are clearly not going to get to a workable solution if this is how the problem is framed. Let’s instead start with what everyone can agree on:

• We should have the lowest unemployment rate possible.
• People should not be exploited.
• Almost no-one would prefer living on welfare to having a job.
• Raising the cost of employment will disincentivise employment.
• The strategies we have employed to date have not reduced unemployment.

The only question then becomes how we reconcile the first two items on the list, and I think the sequence really matters. It’s impossible to make everyone happy, but it’s important as a caring society to reduce the suffering of the greatest number of people — and being unemployed is suffering.

Of course, so is working hard for very little reward. The two are in tension with one another, and we should not pretend otherwise. Only those who are employed could possibly believe unemployed people should remain that way to ensure those with jobs can keep earning high wages. There is also no evidence that “job creation” as a government strategy actually reduces unemployment, as no investor ever established a company to create jobs.

If we are going to reduce unemployment to 20%, a number still viewed as catastrophic by economists outside SA, we would need to double the number of people with jobs. We would need rapid economic growth for this to happen, but this is not possible with our economy still dominated by a small number of very large companies, exactly as the Broederbond designed it. BEE may have changed the skin colour of the oligopolists, but everything else remains the same.

Small business development becomes incredibly important here, but if you think our labour laws are restrictive on large companies try to be a small business operating in an area where the labour minister makes “sectoral determinations”. These allow government to extend a minimum wage agreement, or a wage negotiated by unions and business by way of a bargaining council, to the whole sector regardless of whether the business belongs to the council.

The steel sector is being flagellated through its annual gauntlet of wage negotiations, and the National Employers’ Association of SA, which represents mostly small employers in the steel sector, is crying foul. But why, if higher wages lead to growth, would its members be unhappy? Because SA’s labour market is inelastic, which means growth in GDP creates a relatively small amount of employment. Growth is thus essential, but not sufficient to solve the unemployment problem. Labour density matters too.

To halve our unemployment rate requires there to be a lot more businesses. Shoprite, one of SA’s true success stories, grew operating profit before tax by 11.7% from 2022 to 2023, but employment by only 5.58%. This is a rise in labour productivity, but it demonstrates how much value needed to be added (R1.3bn in profit), to employ only 8,131 extra people. And Shoprite is relatively labour-intensive compared to, say, a factory, which would be more mechanised. Labour density is also far higher in a small company. After all, employment doubles when the second person is employed.

If we move away from trying to create jobs to creating businesses, the picture looks quite different. Because we have a union-controlled government, we tend to think of jobs as a right. If businesses make more profit, unions will immediately want their share of this. Underlying this thinking is the understandable logic of businesses being built on the back of labour.

Once upon a time this was mostly true, but two developments have dramatically changed this. The first is technology. When companies are given the option of using technology instead of labour they almost always opt for technology in SA. The second is global trade. If our labour is too expensive, relative to output (low productivity), labour will be imported in every item of clothing from Temu and every rock we export to China instead of beneficiating here.

Our protectionist labour and trade policies make it difficult for small businesses to thrive, thus entrenching high unemployment rates. If we are to address SA’s horrific unemployment we need to have open, data-driven conversations rather than exchanging insults.

• MacKay is CEO of XA Global Trade Advisors.