Better off in 1981
Long-term trend of declining aggregate employee wages and salaries as a share of GDP
THERE HAS BEEN
a sharp decline in the ratio of employee wages and salaries in South Africa to gross domestic product (GDP) since the effective ending of apartheid in the early Nineties. By contrast, there was a hefty increase in the share of broadly defined worker remuneration to GDP in the Eighties.
At first glance, that seems completely counter-intuitive. Surely the 1981-1990 decade, mostly with PW Botha as President, was a period of brutal suppression of the black masses? That’s certainly long been the received truth in SA.
Conversely, since 1994 SA has for the first time in its history been a basically genuine democracy, albeit with plenty of flaws. Political power has been almost totally dominated by the ANC over that time. The ANC stresses daily that its overriding economic priorities are: To ensure a hugely fairer distribution of SA’s financial and social resources, with special emphasis on uplifting the “formerly disadvantaged”; and increasingly to raise the average increase in GDP to 5%/year over the next seven years or so and then on to 6% or higher after that.
None of that seems remotely compatible with a long-term trend of declining aggregate employee wages and salaries (or “compensation,” as the SA Reserve Bank formally calls it) as a share of GDP.
But that is indeed what has happened. It’s seen in table A.
And how about the trend in the Eighties? Look at table B.
The figures for the Eighties are clearly hugely affected by the enormous leap between 1980 and 1982 in the proportion of GDP accounted for by wages and salaries. There were two key reasons for that – part economic, part political.
SA enjoyed a spectacular boom between 1979 and 1981. That was caused essentially by the strongest-ever surge in the gold price. Remember also, and crucially, that gold was vastly more important to SA then than now. Table C shows the change in the average annual gold price from 1977 to 1981.
The gold price surge tells in itself only a small part of the full story. The key point was that in the all-time boom of 1980, SA still produced more than 40% of total newly mined world gold supplies. The result was in that year gold alone – R10,1bn – accounted for more foreign exchange earnings than all the rest of SA’s physical exports together (R9,8bn).
While that was taking place there was also a major change in thinking – still ultimately facile, but that’s another matter – in political and business views.
The hope then was that “revolutionary” black demands could effectively be diverted by major socio-economic conces- sions. So, in particular, black trade unions were steadily if often unwillingly legalised (the Wiehahn report of February 1979 was the key landmark).
Botha still tried to keep an iron hand on black political demands. But the unions – vitally, grouped in the Cosatu federation – steadily became the base for the internal wing of the ANC, the United Democratic Front (UDF).
Many employers, especially in mining, also sought – often forlornly – to try and “buy” industrial quiescence by a mix of agreed wage rises and cutbacks in total employment.
Bottom line is that millions of urban, unionised workers gained – though millions of rural poor remained as desperately impoverished as ever.
However, that isn’t the only reason for the seemingly curious trends of the wage-GDP ratio – well up in the Eighties, all the way back to the 1980 figure between 1992 and 2005.
The world economy has enjoyed an astonishing and remarkably sustained growth burst over the past five years. That – not for the first time – has made nonsense of such varied perennially arrogant gloomsters as The Economist, George Soros and Morgan Stanley chief economist Steven Roach, among many others.
One inevitable consequence of that was a dramatic gearing of profits – they have risen much faster than turnovers and wages. That’s in contrast to, for example, SA in the Eighties.
Profits, and new fixed investment, performed extremely poorly in SA as economic growth between 1981 and 1999 averaged barely more than 1%/year.
Wages and salaries hardly soared, but they held up very much in real terms, helped by the emergent trade union power noted above.
So the ratio of remuneration to GDP rose appreciably over the Eighties. But the stronger showing of the SA economy in the Nineties and after, boosted immensely by the power of the US economy and the rapid rising China, India and Asia, generally has had disproportionate benefits for profits and share prices.