Eco 314 (SA ECONOMY)

Introduction

The birth of democracy and economic freedom in 1994 brought great hopes for South
Africa’s economic revival in the post-apartheid economy. The new economy was
supposed to be built on the foundation of economic policies that prioritised sustainable
and diversified economic growth that would tackle employment creation, longstanding
poverty and inequality (Marais, 1998: 177-190). However, Nattrass argues that
“economic policy since 1994 has favoured government, business and organised labour
at the expense of the unemployed and at the cost of faster growth” (Nattrass, 2011:1-
8). This paper will critically discuss Nattrass’s argument and analyse the underlying
factors that have contributed to South Africa’s declining labour participation, and the
implications of the increased use of capital.

How business, organised labour and government have benefited from South
African Economic policy since 1994

Since economic freedom and the implementation of GEAR, the South African
government has adopted neoliberal economic policy that advocates for a capitalistic
approach (Marais, 1998: 180-190). Economic theory suggests that under the capitalist
system the owners of capital benefit at the expense of the owners of labour. This is
supported by Burger, who argues that in the first 20 years since 1994, labours share in
gross value added (GVA) has reduced significantly. Gross Value Added is made up of
two components, labour renumeration and the gross operating surplus. Gross operating
surplus is capital’s share in the gross value added (Burger, 2015: 159-160). Economic
theory suggests that if labour's GVA share is falling, capital's share is increasing.
Therefore, benefiting businesses and the owners of capital.   

Macroeconomic data since independence in 1994 indicates that labour’s share of GVA
has declined significantly. In 1993 before independence data retrieved from Statistics
South Africa indicates that labour’s share of GVA was 56%, while capital was 44%.
However, In the 18 years since 1994 labour productivity has increased by 66%, real
private sector wages have increased by 53% and real public sector wages have
increased by 37% (Statistics South Africa: 2014a). Economic theory attributes the fall in
labours share in GVA due to average labour productivity growing faster than real wage
growth.
The significant fall in labours share of GVA illustrates that economic policy in the post-
apartheid economy has favoured business. Macroeconomic data provided by Statistics
South Africa’s, adjusted Labour Force Survey (LFS), from 2000-2007 depicts that real
output growth (35.7%) has exceeded employment growth (17%) by 18.7% (Statistics
South Africa: 2009). This is in line with Burgers econometric analysis of the relationship
between GVA, labour compensation and gross operating surplus. The analysis
concluded that a 1% increase in GVA results in a 1.12% increase in gross operating
surplus. However, a 1% increase in GVA only increases labour compensation by 0.68%
(Burger, 2015: 166). The data above supports Nattrass’s argument as labour
productivity growth has exceeded real wage growth. Therefore, business increasing
share in GVA has come at the expense of workers, particularly the unemployed as
businesses would rather invest in capital than labour.

In addition to South African economic policy since 1994 favouring business, Nattrass
argues that economic policy has also favoured organised labour (Nattrass, 2011:1-8).
Economic theory suggests that an increase in real wages benefits employed people.
Macroeconomic data since 1994 indicates that despite labour’s decreasing share of
GVA, real wages have increased in both private and public sectors (Burger, 2015:161-
170). Data from Statistics South Africa suggests that wages in South Africa have
steadily increased in the last 25 years. In 2005 average real wages stood at an
estimated R6, 500 per month. Whereas, in first quarter of 2022 average real wages are
at an estimated R23, 502 per month (Statistics South Africa: 2022a). The growth in
wages over the last couple of years means that on average, workers have seen their
monthly earnings increase by R17, 000. 

However, according to Nattrass the increase in real wages comes at the expense of the
unemployed (Nattrass, 2011:1-8). Economic theory suggest that when the price of
wages increase, the demand for workers falls, and the supply increases. Therefore, an
increase in real wages will result in the supply of labour exceeding demand and cause
unemployment. This would result in those that are in employment being better off than
the unemployed and further widen inequality in South Africa (Burger, 2015: 159).  

Moreover Nattrass argues that South African economic policy has favoured government
(Nattrass, 2011:1-8). Economic theory suggest that increased business productivity
generates more tax revenue. South Africa's tax revenue has experienced a positive
upwards trend. Before South Africa’s current economic policy, in 1992 South Africa's tax
revenue contributed 18.9% to the country's GDP. However, since 1992 tax revenue as
a percentage of GDP has steadily increased, peaking at 25% of GDP in 2019 (OECD:
2021). The data above illustrate that governments tax revenue increases as real wages,
profits and productivity increase. This is beneficial to the South African government as
increased government revenue facilitates increased government spending. However,
according to Nattrass this comes at a cost to the unemployed. The increased tax burden
discourages employers from hiring new workers as the tax collected by firms reduces
businesses abilities to reinvest in the business and potentially employee new
employees.  

While economic policy since 1994 has favoured government, business and organised
labour, Nattrass argues that this comes at the cost of faster growth (Nattrass, 2011:1-8).
Since 1994 the South African economy has recorded an average rate of economic
growth of 3% per annum in real terms during the period 1995 to 2004. This is higher
than the 0.8% average annual growth registered during the period 1985 to1994 (du
Plessis & Smit, 2006: 4). However, according to du Plessis and Smit, “South Africa’s
economic growth falls short of the growth rate required to advance employment and
development for the entire South African population” (du Plessis & Smit, 2006: 28). This
is consistent with the South African economy as macroeconomic data from Stats SA
indicates that the unemployment rate in South Africa has increased from 20% in 1994 to
34.5% for the first quarter of 2022 (Statistics South Africa: 2022b).

The reasons for labours changing relative shares of income since 1994

According to Organisation for Economic Cooperation and Development (OECD),

labours declining share in GVA can be attributed to two main factors that have
weakened labour’s bargaining power since 1994, the first being technological change
(Burger, 2015:160-161). In the last 30 years the world experienced remarkable changes
concerning technology. The increase in use of technology has led to the greater
productivity of capital (machines) compared to labour. Therefore, decreasing labours
share in GVA. This is in line with the Organisation for Economic Cooperation and
Development (OECD) that argues that in 26 of the 30 OECD nations, about 80% of the
decline in labour share in GVC is attributed to firms substituting human labour for
technology (Burger, 2015:160-161).

The second factor contributing to labours declining share in GVA is higher levels of
globalisation (Burger, 2015:160-161). According to Burger globalization has forced firms
to shift parts of their value chains to developing countries in order to benefit from low
wages. The shift in production has reduced the demand for workers in developed
countries. Therefore, reducing wages as large firms have moved their business to
regions where they can find cheap labour (Burger, 2015:160-161).

In contrast to the OECD’s argument that technological change and globalization being
the main driving factors in the decline in labours share in GVC, the International Labour
Organisation (ILO) argues that in developed countries financialisation, globalisation
technologic change and labour market conditions have all contributed to the
deterioration in the share of labour (Burger, 2015:160-161). 

Conclusion

In conclusion, this essay has discussed Nattrass’s argument that “economic policy since
1994 has favoured government, business and organised labour at the expense of the
unemployed and at the cost of faster growth” (Nattrass, 2011:1-8). In order to achieve
meaningful economic growth, South Africa will require strong employment growth,
especially for the unskilled workforce. The Government needs to create training
programs for the unemployed that will assist them in acquiring the much needed skills
that will cater for the new evolving industrial revolution and technological change. In
addition, government can cut business payroll tax. This will enable businesses to retain
more money and subsequently use the money saved to potentially employee new
workers and decrease employment. 
References

Burger, P. (2015). Wages, Productivity and Labour's Declining Income Share in Post
Apartheid South Africa. South African Journal of Economics.

du Plessis, S. A. and B. W. Smit (2006). Economic Growth in South Africa Since 1994.

Nattrass, N. (2011). The new growth path: Game changing vision or cop-out?. South
African Jornal of Science.

Marais, H. (1998). South Africa: Limits to change. London, New York: Zed Books / Cape
Town: UCT Books, pp. 177-198.

OECD. (2021). Revenue Statistics in Africa 2021, OECD Publishing, Paris,

https://doi.org/10.1787/c511aa1e-en-fr

Statistics South Africa. (2009). Labour Force Survey: Historical revision September
series 2000 to 2007. Statistical release Available from: http://www.statssa.gov.za

Statistics South Africa. (2014a). Revised QLFS trends 2008-2013 corrected. Excel
datasheet available from: www.statssa.gov.za

Statistics South Africa. (2014b). Gross Value Added data. Available from: StatsSA on
request.

Statistics South Africa. (2022a). Quarterly Employment Survey. available from:

www.statssa.gov.za

Statistics South Africa. (2022b). Quarterly Labour Force Survey (QLFS). Available from:
http://www.statssa.gov.za