One On One

Q & A – Prof Jeremy Seekings

South Africa is urgently seeking measures to grow and expand its manufacturing sector as it holds great potential to create employment and absorb millions of people currently out of work. Analysts have suggested that to reduce unemployment, South Africa needs to prioritise labour-intensive work instead of higher wages. The Weekly’s Martin Makoni spoke to the Director: Centre for Social Science Research at the University of Cape Town Professor Jeremy Seekings who has written extensively on the country’s manufacturing sector. Makoni asked Seekings about the situation in South Africa’s mining and what could be done to improve the situation. Excerpts:

How would you describe the state of the country’s manufacturing sector?

You can look at it from two points of view: The first point of view which is in terms of output, it’s fairly stagnant. But in terms of employment, it’s looking very poor because there has been almost no job creation in the sector and there are continuing job losses.

But what would you say could be the problem given that the economy produces a lot of raw materials which could be processed in the country?

I think it’s simply that we have very inflexible labour market policies and they are completely destroying the labour intensive manufacturing sector. The policies are in fact, encouraging other sectors to become more and more capital skill intensive and that’s really not where South Africa has a comparative advantage. We don’t want to be competing with Germany, we want to be competing with other developing economies.

But by remaining labour intensive, doesn’t that continue to push up the cost of production, because people will always want wage increases?

Not necessarily, no. For example, take the clothing sector, I know quite a bit about it because I have written about it quite a lot… As we speak, trade unions are pushing the bargaining council to close down firms in Newcastle and other relatively low wage parts of the country. They are trying to shut down factories and what happens when this happens, well, people lose their jobs. And what happens to the goods in the shops, well, the next time you go to the shops, everything will be coming from China, Bangladesh, Vietnam, Cambodia and Indonesia. When this happens, you will find it ever harder to find something which is manufactured in South Africa.

But isn’t it that the unions are simply asking for improved wages, they are saying the wages people are currently getting are tantamount to slave wages, isn’t that the case?

The manufacturing sector is a low wage, low profit sector. So, I think at the end of the day, you have to actually allow the workers in that sector decide for themselves whether they want to work for such wages. You don’t want to have a trade union with its own vested interests or somebody from outside telling people what they can and cannot do.

Government says it is looking at ways that could help grow this important sector, what do you think South Africa should do?

Well, I think first of all, it’s important to understand that South Africa is a labour surplus economy. However, we don’t have a surplus of skills. We have a surplus of lowly skilled labour. We need to facilitate producers using more of the resources that we have, which is less skilled labour. We should rely less on resources we don’t have, which are capital and skilled labour. So, the short answer is, we need policies that favour labour intensive manufacturing sectors. The moment we have the opposite, we have industrial labour market policies which push firms to be more and more capital intensive, more and more skill intensive, which would result in an increase in poverty and inequality.

You have co-authored a book with Professor Nicoli Nattrass called “Inclusive Dualism: Labour-intensive development, decent work, and surplus labour in Southern Africa’. What was your motivation to write the book? What did you seek to achieve?

We were motivated to write the book by the destruction of jobs in the South African clothing sector. It’s extraordinary in an economy with 38 percent unemployment. We have had cases of officials going around closing down factories. We have travelled around the country… and you may also know this… in some places where they used to be clothing factories, they are now closed. And these are generally in areas of high unemployment.

So, would you attribute the closing down of factories to the fact that there is too much government control on the sector?

The closures are partly in connection with wage regulations, but it’s also partly the fact that the government provides capital subsidies. So, in other words, the government makes it easy for firms to retrench workers and replace them with imported machinery. This is because the government essentially pays for this machinery. In other words, the government is paying employers to get rid of workers and use machines instead.

You have argued in one of your opinion pieces that to reduce unemployment South Africa needs to prioritise labour-intensive work instead of higher wages, could you expand on that?

Economist Arthur W. Lewis who might be considered the founding father of development economics in the 1940s and 1950s, argued that labour can move out of the peasant farming sector – without affecting production there – and into low-productivity capitalist sectors, including industrial sectors such as clothing manufacturing, if wages in those sectors are low, in line with productivity. And as capitalist economies grow, Lewis argued, they will reach a turning point at which labour becomes scarce. They will then shift into higher-productivity sectors and wages will rise. Lewis’ ideas are very relevant today across much of southern Africa. In South Africa and most of its neighbours, “surplus labour” exists in the form of massive unemployment and under-employment (employed at less than full-time or paid too little for economic needs) rather than in subsistence agriculture. Faced with this kind of economy, Lewis would recommend that the government expand the clothing manufacturing sector and other labour-intensive capitalist sectors.

But the challenge remains that people demand what they call living wages while employers continue to say they cannot afford higher wages, how can this be balanced so that at least, people have jobs and earn decent wages?

In an economy with surplus labour, the goal of job creation requires a high employment elasticity of growth. Only when the economy has sufficiently grown, raising wages become more of a priority than creating jobs. In developing economies, economic growth can generate lots of short-term jobs in sectors such as construction. This was what the east Asian tigers – including China – did. The south-east Asian countries are now doing the same thing: In Vietnam, Cambodia and Thailand, an additional one million jobs in clothing production were created between the mid-1990s and mid-2000s.

So, given the massive surplus labour faced by the country, what do you suggest South needs to do?

Policy-makers should have been promoting labour-intensive sectors, such as clothing manufacturing, but instead, they have been pursuing the goal of high-wage, high-productivity, “decent” work, without much or any regard for the costs in terms of both actual job destruction and obstacles to large-scale job creation. That’s not what South Africans wants. Every poll of public opinion since 1994 points to job creation being the top priority of South African citizens. South African citizens would like to see high-wage jobs being created, but most believe that any job is better than nothing. With the current policies, even when industrial output grows, jobs are not created. That must change.