THE case of five small Chinese-owned clothing firms in the KwaZulu-Natal town of Newcastle, which on Tuesday launched court action against the wage-setting practices of the National Bargaining Council for the Clothing Industry, has implications beyond the future of the enterprises involved.
The outcome of the case, which considers under what circumstances the council and the minister of labour are legally able to extend agreements reached in the council to nonparties, will decide the future of a further 450 firms employing 16,700 workers. All of them face closure for failing to comply with the minimum wages set by the council.
It also puts the focus on the bargaining council system, over which there has been continuing debate, and contradictory research findings about whether the system dampens employment, job creation and whether it takes adequate account of the needs of small businesses.
The case also goes to the heart of the type of employment and industry that South Africa wants to foster: is there still a place for low-wage, labour-intensive industry, or is South Africa set on its path of "decent work" and higher capital intensity, along with which comes lower employment but higher wages?
It is for this reason that the Centre for Development Enterprise (CDE), a business-funded, independent think-tank run by Ann Bernstein on Tuesday published an in-depth study to examine the Newcastle case, written by University of Cape Town professors Nicoli Nattrass and Jeremy Seekings.
The Newcastle clothing producers’ struggle to remain in business, they say, is "symptomatic of the difficulties involved in promoting labour-intensive growth in South Africa".
The argument of their paper is that the firms involved are the "last remaining labour-intensive (example) of the manufacturing sector in South Africa".
The bid to close them down by both government and trade unions, with the explicit support of big employers, is driving "a process of structural adjustment that undermines labour-intensive employment and exports South African jobs to lower-wage countries such as Lesotho or China".
Agreements reached in bargaining councils, which are typically dominated by large employers and large unions, can be extended to other parties only if the parties on the council are sufficiently representative or if the majority of employees and employees to whom the agreement is extended, are members of the organisations that are represented on the council.
Since the coverage of bargaining councils has been in decline, it makes it an interesting case to watch. The CDE paper shows how, since the introduction of a clothing bargaining council in 2002, wages in rural, economically marginally locations, such as Newcastle, have been driven steadily upwards, threatening the small Chinese-owned firms. These were originally attracted to the area through apartheid era rural industrial incentives, which subsidised wages.
These producers, rather than being a threat to mainstream manufacturers, focus on the production of cheaper, low-end products and do not compete with the better paid, higher value-added sector that is characteristic of the industry. Furthermore, while not excusing the abuses some may perpetrate — such as locking workers in factories for the night — the firms in question operate on very low margins.
So while the companies pay low wages, the model is one that also results in low profits.
Not allowing jobs like these to survive is not to the advantage of either established industry or the country’s unemployed as jobs are simply exported to Lesotho or to China, where the same type of low-end goods are produced, the authors argue.
While the Newcastle case study is a valuable illustration of the practical outcomes of policymaking, building a case that will sway government decision-makers is probably only a little short of impossible.
The preference for a high-wage, high-value-added path has been long entrenched in government thinking and is the route that the clothing industry has embraced for its survival.
As the authors also point out, government incentives are now all skewed in this direction.
Incentives are linked to capital investment and modernisation and to access these, companies have to comply with the minimum wage legislation.
Harsh political realities have propelled the development of policy in this direction. But the deep concern is, as professors Nattrass and Seekings conclude, that the "hoped for high road of job creation through skill-and capital-intensive growth has yet to materialise".
In the interim, the costs have been born by workers in this labour-intensive industry.
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