Bet­ter off in 1981

Long-term trend of de­clin­ing ag­gre­gate em­ployee wages and salaries as a share of GDP

Finweek English Edition - - Economic trends & analysis - BY HOWARD PREECE howardp@fin­week.co.za

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.

TA­BLE A

Source: SARB, De­cem­ber 2006, QB

TA­BLE C

Source: SARB, June 1984, QB

TA­BLE B

Source: SARB, Septem­ber 1995, QB

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