Do Trade Unions in South Africa Represent the Poor?

As trade union members received a pay rise in Marikana, Lomnin closed down one of their shafts, terminating an agreement which affected 12000 casual workers. Casual workers form an increasingly large component of South Africa’s labour force. They receive fewer benefits, are paid significantly less, and have less job security. They are not represented by trade unions. Yet, the actions of the unions directly affect them. Are the casual labourers being screwed by the unions?

Andrew Kerr published a recent working paper on pay differentials in South Africa. Andy, please forgive me for only discussing some basic descriptive statistics (which I concede are subject to some caveats). According the KIDS data on workers in Natal, it seems that trade unions in South Africa really do represent the economic elite. Only 10% of the total labour force is unionised; and they earn significantly more than the rest of the economy. Furthermore, according to this data, a shocking 40% of workers are categorised as casual. 

The Quarterly Labour Force (averaged over the past 5 quarters) show similar trends. Only 30% of those working are unionised; and only 64% of workers claim to have a permanent contract with their employer. Union members earn significantly more

So, how could the actions of trade unions hurt casual worker? Simply put, a trade union represents only its members, and not all of the work force. It will push for higher wages and larger job security and benefits for their members. This is, of course, very important. However, with higher job security and benefits, firms become reluctant to hire and opt for hiring and rehiring casual labour on a short term basis. So, the unintended consequence is a dual labour market, where a large part of the work force is stuck with no job security or benefits. Those who suffer most are the new entrants into the job market – the youth. 

A recent report by the Centre for Development of Enterprise (CDE), summarises study by Neil Rankin from WITS on the difficulties of South African youth in finding permanent employment.

Service Delivery and Culture of Entitlement

The poor get poor service, not only because of bad provision and roll-out, but because the poor expect too little. 

A doctor friend of mine who moved from South Africa to UK recently remarked on the difference in patient behaviour between poor South Africans and the UK. In the UK, patients are more likely to question and challenge the doctors’ decisions. In South Africa, poor patients stoically accept doctors’ judgement. As a result, doctors in the UK are held more accountable by their patients. 

As another example, a South African friend failed to navigate the public health system when his wife got cancer. He was illiterate with no experience with hospitals. But more than that, he was intimidated. He was unwilling to push to receive the treatment he deserved. As a result, uptake is lower.

These examples show that improved quality and use of public service provisions is not only about management and access. It requires a better appreciation of the poor’s engagement with service providers. Accountability and uptake will be lower if clients expect too little. 

What explains this difference in behaviour? Maybe it is low expectations, learned from a history of bad service delivery. Maybe it is lack of confidence: asymmetric power relationships, which still remain after apartheid ended. Maybe the poor don’t believe they deserve good service. 

Annette Lareau (2011) argues that middle class parents cultivate in their children a sense of “entitlement”. They believe they deserve more and as a result get more. So, poor South Africans don’t have too much of a culture of entitlement, as many claim, they have too little. 

If a sense of entitlement is learned in the middle class household, then maybe public policy can do the same for the poor. Maybe it is possible to shift expectations through appropriate provision of information.  Ray (2003) argues that one poverty trap is a “failure of aspirations”. This could be applied to individual dreams (expectations of personal achievement), but also expectations of service delivery.

Morality and the Markets

Social justice philosopher, Michael Sandel, has gone on a recent tirade against the hegemony of economic thinking in society. In particular he thinks we take market exchange too far – we need to bring morality back into the markets. His arguments are either paternalist, or based on a misunderstanding of economics. 

His first point is that economists only care about efficiency.

“We fall into thinking that economic efficiency—getting goods to those with the greatest willingness and ability to pay for them—defines the common good.”

This is a common misconception of economics. The result that pareto efficiency could be reached with free exchange is a positive result, not a normative statement. Economic theory by no means excludes concerns over equity. It just forces you to be explicit about it. There is, in fact, a whole field of economics which analyses formally how different societies would look, given a desire for equality. To my view the key contribution of economic theory to arguments of social justice is a better understanding of the trade-offs that a social planner faces between efficiency (the size of the pie) and equality (the distribution of the pie).

His second point is that “parties [who exchange] may value the things they exchange in the wrong way”. 

This is patronising. It is very arrogant to think that your valuation of a good is superior to another’s. And even if you are right, the solution would be to convince others of your valuation, rather than limit their freedom to exchange.

His third point is the free choice is not always free. In the market for organs:

“In practice, the sellers of kidneys would likely consist of impoverished people desperate for money to feed their families or educate their children. Their choice to sell would not really be free, but coerced, in effect, by their desperate condition.”

 This is true. But the solution would be to create a society which gives the poor more choice, rather than less. It is abominable if a poor person is forced to sell his/her body out of economic desperation. But limiting that choice makes him/her worst off, not better.

I think there are two legitimate reasons to place restrictions on exchange. First, if one party is unwittingly made worse off from the exchange, because it places limits on a person’s future choices. Take for example drug addiction, debt bondage or human trafficking. Second, if exchange between two parties makes a third person worse off. Take for example pollution. Once again, economists have a lot to say about this.

I have so often come across such straw man criticisms of economics. Why is it that people think that the study of economics comes at expense of morality? Why are we so commonly misunderstood? Maybe our thinking gets “lost in translation” when applied by policy makers. If this is true then yes, I agree with Sandel that a better economics education is required.

Markets and the Environment

Reading Jarrod Diamond’s Collapse makes me think that economists need a better understanding of ecological systems when we think about the appropriate role for government in combating environmental problems. Welfare economics has demonstrated the need for government intervention when information is imperfect or markets are incomplete. A lot of market failures can therefore be overcome by developing property rights and providing appropriate information. 

However, Jarrod Diamond’s Collapse makes me think that there are some unique features of environmental problems that our textbooks don’t address: 

1.       Long lags and Multiple Equilibriums: Environmental degradation, and its resulting economic consequences, is not immediately visible. There are thus long lags in price changes and resultant market responses. However, by the time the market adjusts, it might be too late. This is because multiple equilibriums in ecological systems means that environmental destruction is often a one-way street: it cannot be reversed. Diamond’s example is of deforestation which leads to erosion of all land, but overfishing is good current day example, where fish stocks cannot be replenished to its original level.       

 

2.       Systemic Risk and Long-Term Environmental Cycles: Human beings have short time horizons and we are not good at thinking about the risks of unlikely or catastrophic events. As our societies become increasingly inter-dependent, we benefit from the specialisation and exchange. However, inter-dependence also creates risk. Furthermore, fortuitous circumstances today could be nothing more than a centuries-long upward cycle. By increasing our systemic risk, we become more vulnerable to collapse when environmental circumstances change. Diamond cites the collapse of the Anasazi empire the US South-west where a complex inter-dependent society developed over a couple of centuries of good rainfalls, but imploded when rain become less frequent. 

These examples invoke less optimism in the market to adequately respond to risks of environmental destruction.