South Africa: False Narrative Feeds a Potentially Ruinous Respect for Unions

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Michael Kransdorff And Marian Tupy Business Day (Johannesburg)17 July 2009

Johannesburg — WHETHER under apartheid or democracy, SA’s politicians have always liked to admonish the country’s businessmen. Apartheid politicians believed corporate profit-making undermined white baasskap, while SA’s current rulers believe that corporate profit-making is antithetical to black empowerment.

Minister in the Presidency Trevor Manuel should thus be commended for breaking with tradition and calling on the business community to counter the influence of labour unions. For almost a century, South African governments have championed the interests of labour unions through discriminatory and distorting regulations that harmed businesses and SA as a whole.

The common yet deeply mistaken narrative of South African history holds that apartheid was a natural outgrowth of capitalism. The country’s businesses have been painted as villainous beneficiaries of racial laws that exploited black South Africans. But an honest look at the evolution of racial discrimination shows that the intended beneficiary of apartheid laws was white labour.

The recession that followed the First World War led to a fall in the gold price . In response , SA’s mining companies tried to replace white labour with cheaper black workers. The growing tension between the mining companies and white labour led to the 1922 Rand Rebellion, in which white workers demanded protection from their black competitors. Support for Jan Smuts, who put down the rebellion, declined and his South African Party lost power in the 1924 election to a coalition government composed of James Hertzog’s Afrikaner Nationalists and the socialist Labour Party. Race discrimination in the workplace, which Smuts put in place to mollify the disgruntled white workers, intensified under Hertzog. The Mines and Works Amendment Act of 1926, for example, firmly established the principle of the colour bar in mining. The pass laws and other legislation that came to characterise apartheid SA followed only three decades later.

There can be no doubt that the apartheid state originated in labour legislation that benefited one part of the labour force over another. Blacks were the main victims, but SA as a whole suffered. The colour bar resulted in a shortage of skilled and semiskilled labour. White wages increased to artificially high levels, reducing corporate profits, which hampered investment and growth. In fact, organised business often criticised apartheid policies.

Given SA’s dreadful history with labour regulation, the African National Congress (ANC) should be championing freer labour markets. Unfortunately, the ruling party has chosen to emulate Afrikaner nationalists. Like the Nats, the ANC is catering to an important voting bloc of unionised workers. The general welfare of SA appears to be far from the ANC’s agenda.

Let us be clear: overbearing labour legislation advances the interests of unionised workers at the expense of the unemployed. The more difficult the unions make it to replace workers and to compensate them at a market rate, the more difficult it is for the unemployed to enter the job market. Thus, in spite of 15 years of economic growth, unemployment still hovers at an unacceptably high level of 24%.

Unfortunately, all indications are that under the Jacob Zuma administration, the unions will have even more say in government policy. At least seven Cabinet members are former union leaders, while Congress of South African Trade Unions secretary-general Zwelinzima Vavi has even declared that “we are the policy makers and the government implements. The government doesn’t lead any more.”

Businesses in SA should take up Manuel’s challenge. For too long they have been intimidated by a false narrative that holds that the successes of SA’s companies in the past depended on apartheid legislation. The time has come for the business sector to stand up to organised labour. SA’s future economic growth and prosperity depend on it.

Tupy is a policy analyst at the Cato Institute’s Centre for Global Liberty and Prosperity. Kransdorff studies at the Harvard Kennedy School in Cambridge, Massachusetts.