In 1924 Smuts introduced the concept of bargaining councils (formerly industrial councils) to appease the white workers and to gain their votes in an upcoming election.   He failed because of the Pact government but the system was gladly adopted by the new government.   The system allowed large employers and trade unions to exclude competition based on wages and terms and conditions of employment by extending the provisions of collective agreements to all the players in the sector.   Today the consequences of that system are seen in Newcastle.

Today Business Day was the first to publish an interesting article by Ann Bernstein, executive director of the Centre for Development and Enterprise, and author of The Case for Business in Developing Economies, Penguin 2010, entitled Employment:  What opportunities await the newly jobless of Newcastle?

Courtesy of Business Day here are some extracts from the article which deserves to be viewed or downloaded by clicking on the heading.

Newcastle has had a garment industry since the 1980s — developed mainly by Taiwanese investors.   The firms are in the labour-intensive and highly competitive cut, make and trim business.   Instead of SA recognising this industry and doing what it can to preserve and expand these companies, existing regulations and practices are destroying it.   No one involved in this destruction has explained where the workers involved will get alternative employment.

Newcastle employers are not fat-cat capitalists living well while they pay low wages.   Most are struggling to make a go of their business.   Some of the newer entrepreneurs live in a room or two at the back of their factory, saving for their children’s education.   They know that in Swaziland and Lesotho they could pay even lower wages and argue that pushing their wages up to the minimum agreed by the bargaining council will force many companies to close or relocate outside SA.

Imagine if a politician stood up in the Eastern Cape, Newcastle or Polokwane and said: “Vote for me! I believe in first-world labour regulations which by the way means that the vast majority of you will not get jobs at all.   Vote for me!

“I believe in empowering urban and rural women, except I will decide what kind of jobs you can get and that means that most of you will not get any jobs at all”.   Of course no one will do that.   And especially not in places such as Polokwane where 90% of young women were unemployed even before the current recession.

In the 1990s when our labour legislation was being debated, many experts knew the result would lock millions out of the formal employment market.   I challenged one of them to come with me to any township and hold a public meeting about the legislation.   I wanted them to say publicly what one expert had told me privately: that the adoption of German-style labour standards would mean the creation of a labour aristocracy in SA and mass unemployment for everyone else.

SA today faces a simple question.   Is it better for someone to have a job or to remain unemployed?   The country has to make a choice.   Do you think it is better to have a relatively small number of people working at increasingly skilled jobs with relatively good pay and the vast majority of young people and a third of the labour force unemployed?   Or is it better to have as many people as possible employed in the formal sector?   Even if many of those jobs are not well paid and have less than ideal conditions, they offer a first step into the modern economy and the wages, training, discipline, skills and opportunities that flow from that.

Increasingly this is going to be the key fault line in our society.   Are we building a country for all its citizens or just those who have skills and experience, who are mainly urban and have jobs?

National interests should trump minority sectional interests.   And nowhere is this more important than with respect to the changes required to make SA a more labour-intensive economy.   We have to change the risk and incentive structure so that existing employers and new investors are encouraged to employ more people and start new enterprises or expand existing ones.

The minister of finance is right: “With jobs comes dignity.   With dignity comes participation.   And from participation emerges prosperity for all”.