The Productivity Debate, Marikana and the Struggle to Create an Inclusive Economy

By Saliem Fakir · 4 Sep 2012

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Picture credit: United Nations
Picture credit: United Nations

Sometimes economic speak merely arranges the technical as a substitution for the moral. The technical itself becomes slanted by a polemic of legitimation.

The debate as to whether South Africa’s economy is productive or not often has a convenient scapegoat - the problem of the unproductive worker.  Workers don’t work hard enough for the wages they earn, so they shouldn’t expect more because there is always somebody else willing to work for a lower salary, is the dominant argument.

This was the undertone that ran through the debate on whether Lonmin’s rock-drillers should be asking for more pay, and much is being made of whether the workers earned R4000 or R10 000. But this is not really the issue we should be focusing on.

The wage dispute simply points to a system gone out of kilter with itself as far as income expectation goes – one party can enforce exorbitant entitlements, whilst the other can’t.

The entire economic system - where rewards for some are higher than justifiable - is about the structure of economic extraction that has taken a life of its own since 1994, and where everybody wants a share in the profits. Marikina has simply exploded the underbelly of this extractive model and its unsustainability. This is why it’s such a significant event.

The problem of extraction is not limited to large corporations and the BEE crowd, but also the complicit state and established labour unions that have been unable to do anything about it.

Nonetheless, coming back to this issue of productivity - standard measures of productivity in the economic literature identify five key drivers: investment in capital, innovation, skills, enterprise and competition, as key factors in productivity gains.

Labour productivity and general productivity are often conflated in debates. When general productivity fails, labour is often blamed when this should not be the case. Labour productivity is the relation of time to level of effort and the skills of a worker – usually measured on an hourly basis.

Labour productivity is also dependent on experience (including that of the company), capital investments (the better the tools, the better the output and quality of goods produced) and the efficiency of an organization (which is really a management, technology and innovation issue).

Productivity gains translate into more growth and higher incomes. Labour productivity is strongly related to the performance of all the other factors acting in concert with each other. Any measure that does not take this into account is at best, engaging in economic misinformation.

Sometimes productivity arguments are used to pursue a deliberate strategy of creating a climate of legitimacy and pressure for the further suppression of wages. Often this seems to be an odd and contradictory excuse when the very evidence of productivity gains is used by management to somehow justify exorbitant wages and bonuses for themselves.

Only when workers start to ask questions about fair wages does their productivity become a question of dispute. There may be those who also throw in the argument that wage increases will lead to inflation. A lot depends on whether this in turn leads to productivity increases.

Clearly, incentive and productivity are conjoined and economic literature shows this to be the case. However, when questioning the inflationary effects of workers’ demands for pay increases, people forget to ask questions about the high wage inflationary effects of CEOs and top management. There is silence on this question.

If anything, the Marikana incident - and given the details that have emerged subsequently - suggests that rock-drillers were willing to work harder. Some did, because there were incentives to up the game in the form of bonuses for hauling out more rock.

The question was never an issue of output because clearly platinum firms were doing well, but rather whether there was a good relation to overall productivity gains, income and fair wage.

In mining, a lot depends not only on the price of the commodity, but what the relation of extraction is between worker, state and corporate shareholders. What exactly is the deal? When one party’s share becomes disproportionate, discord will prevail. The deal is broken.

The Marikana incident happened because the collective bargaining system, regulated and enforced by the state, failed. It only recognised the productivity of some workers and not the others. In so doing, it entitled some workers to a better share and excluded others.

Mining in South Africa is also part of the international network of capital. The problem of extraction is exacerbated and can be acute because mining companies - and this certainly applies to multinational corporations - have globalised balance sheets and see a national operation simply as a cost centre. They show little commitment to the long-term stability of a country’s national politics, nor its economy.

International mining companies only have the incentive to “take out” and “get out” fast. They will squeeze any national operation in order to meet their international targets when it comes to financial performance. Therefore, their short-term economic interests can leave countries with long-term political consequences.

The scale of the disproportion between top management and ordinary worker, as the Marikana incident revealed, suggests a fairer system is possible as everybody could come out with enough to live a decent life.

The focus seems to be entirely on whether workers had the right to ask for more and not whether shareholders, managers, and CEOs were willing to let go of their, beyond necessary, inflated salaries and high bonuses. This would, however, mean sacrificing their luxury yachts, holiday homes and leisure trips to the Bahamas.

The relation of productivity to high pay scales for management and CEOs is not really associated with the level of their own productivity. What exactly justifies a CEO earning an annual pay-cheque equivalent to the combined annual salaries and benefits of 4000 mineworkers? There is no bargaining council for CEOs, so they are at liberty to set their salaries sky-high.

It remains anybody’s guess as to why a R20m annual salary and other complementary benefits are justified -- or for that matter how the productivity of an entire firm can be attributed to a single individual.

Proponents argue that CEOs get market-related remuneration packages. This may be so, but is it moral? The truth is that a new set of ethics has entered the corporate sector that is tilting the entire system out of balance -- and it is unfair.

The UK’s High-Pay Commission, which concluded its report this year on British CEO salaries, “Cheques with Balances: Why tackling high pay is in the national interest” (PDF), shows that the justification for excessive pay has no intrinsic relation to the success, performance or productivity of the company.

Excessive executive pay breeds distrust, lowers productivity and forces a practice of austerity on worker wages while intensifying inequality and anger at an unfair system.

The system is at best rigged to support a certain class of people against others. If we don’t deal with the extractive industry model in South Africa and the institutions that legitimate it, higher incentives and rewards for some and limited benefits for others, will continue to bring political and economic instability to the country. 

Fakir is an independent writer based in Cape Town.

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