Social pact is needed to spur growth and stability


The South African economy is bracing itself for another strike with news that the National Union of Metalworkers of SA has called on its 220 000 members to join industrial action over wages.

For anyone who hoped that the gruelling five-month Association of Mineworkers and Construction Union strike would have taught us something, this latest development exposes the hard truth that social unrest is here to stay. The ongoing strikes are symptomatic of a larger, more systemic fault line within the political economy and are likely to continue sporadically until key structural issues are addressed.

There is growing frustration that the rate of improvement in people’s lives does not measure up to their expectation of what the post-apartheid scenario would deliver. And business is going to find itself increasingly dealing with the frustration and, often unrealistic, demands of its workers, which may actually reflect something much larger than their immediate work circumstances. This cannot be dealt with purely at the labour relations level but needs to be understood in the national context of a broader social consensus.

In a recent article, journalist Martin Creamer quoted Finance Minister Nhlanhla Nene as saying: “We must find a balance between meeting the earnings expectations of shareholders, the realisation of the vision of economic transformation required by the electorate and occupying our rightful place as global corporate citizens.”

This notion of a social compact between the government, business and civil society as a basis for long-term economic development and growth underpins economic models in many industrialised countries.

In Africa, though, we have generally seen a lack of imagination on the part of the state and society about a long-term social compact. Historically, Africa has not had a well-developed formal social net and the state has suffered from a lack of legitimacy and has had to find other non-transparent ways to govern. The recent transition to democracy in many African countries, from the mid-1990s onwards, accompanied by higher economic growth raises the question of how to consolidate this process within a modern state, which is accountable to its citizenry.

South Africa is an interesting case because it has developed a comprehensive approach to social security given its level of development. There are around 10.3 million beneficiaries of child support grants, and 1.2 million disability grant recipients.

The cost of these social grants amounts to 3.5 percent of gross domestic product. There have been calls for higher taxes to fund social demands but this is only viable if there is confidence in the government’s ability to deliver social progress and trust that it will not be used to further patronage for a small elite.

Furthermore, social security does not address the root causes of unemployment and inequality in South Africa; instead, it is putting an increasingly unsustainable pressure on the fiscus to support an ever-growing number of welfare recipients with a static and limited taxpayer base. This issue has become increasingly politicised both within and outside government, reinforcing the importance of social compacts being embedded in a broader national consensus on future economic development.

The post-apartheid dispensation was a negotiated settlement between elite groups that left the majority of the population without “voice”. The previously disadvantaged were given the opportunity to vote, but with effectively a dominant single party they largely have no alternatives to express their dissatisfaction with the status quo.

The search for a new social order that accommodates this frustration is pressing in developing countries and creates new interest groups and alliances and sees old social orders collapse.

The ideal outcome is a long-term social compact, which brings business, government and labour together in an attempt to address the structural deficiencies in South Africa’s political economy. This will not be easy given the country’s past and the antagonistic relations between these stakeholders. But the alternative is rising instability and continued policy vacillations leading us down a path that nobody wants.

* John Luiz is a professor at UCT’s Graduate School of Business. He writes in his personal capacity. This is a shortened version of his article, “Social compacts for long-term inclusive economic growth in developing countries”, published in Development in Practice (2014). To access the article, visit www.tandfonline.com/cdip


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