WHY should public money directly
subsidise for-profit enterprises?
The rationale for the proposed
youth employment subsidy is that it
will generate 423 000 jobs. But how
many of these would have been created
anyway, and how many will be
There are circumstances in
which the costs of employing labour
as opposed to the costs of mechanisation
are evenly balanced, and a
subsidy might make a difference. No
doubt there are also small enterprises
that might be encouraged to
employ because of a subsidy.
The problem is to identify these
instances. But the National Treasury
does not propose to do that. Its
target is youth, and not to put too
fine a point on it, it hopes that by
throwing money the way of businesses
that employ youth it will
have addressed the problem of
To be fair, National Treasury
does not claim that the youth wage
subsidy will be a silver bullet. Nevertheless,
it slots into a discourse
that holds that the problem of unemployment
will be overcome by stimulating
Whereas we now know that a rising
tide does not lift all boats. Only
those on cruise liners and luxury
yachts are buoyant.
So it seems fair to ask which
employers will benefit most from the
money thrown their way. If I were to
hazard a guess, it is those operating
in what I have depicted as the second
tier of the labour market. It is, after
all, in the second tier that wages are
the most critical determinant of
cost. But is this the kind of employment
we should be encouraging?
What is certain is it will only be
enterprises that are registered as
employers with the Receiver, for this
will be a precondition for qualifying
for a subsidy. Arguably it will therefore
only apply to the formal economy,
although the definition of formal
is contested. Employers that
are not registered, most of whom
will probably be in what I have
depicted as the third tier, will not
qualify. It is also not obvious that the
introduction of the subsidy will
encourage them to do so.
What is the alternative? Both
here and elsewhere there is growing
recognition that if any alternative is
to be found, it lies in expanding the
social economy, or what some prefer
to call the solidarity economy. This
comprises both non-profit and notfor-
profit organisations that exist
unacknowledged alongside what is
traditionally regarded as the public
and private sector.
The non-profit organisation is
more familiar but less important in
the current context, because it does
not have an economic objective.
A not-for-profit organisation
does, even if that is not its sole
objective. I will illustrate this with
examples in the third and fourth
tier, because it is here that the benefits
of association are clearest.
We are all familiar with the service
that the workers we now term
“car guards” perform, which is a
municipal service, even if it is not
recognised as such.
When performed with integrity, it
reduces petty crime in urban areas.
But in the absence of organisation
there is no safeguard that an individual
car guard is not part of that
problem, which is why the public
always prefers workers in uniform.
A uniform signifies an organisation
to which the worker is accountable.
One such organisation operates
on a for-profit basis at an upmarket
mall near where I stay. The workers
pay R20 a week to a middle-man for
the waist-coat they wear, and the
right to operate in the parking lot.
He would say he provides sustainable
employment, because he has
been doing this for years. Come to
think of it, it would not be hard for
him to restructure his business so as
to qualify for a youth wage subsidy.
In effect, however, he is trading
on the levels of desperation that
make people accept employment on
any terms. Workers accept, because
they are not presented with alternatives.
Trade unions are not an alternative
for workers in the third and
fourth tier. What they need is an
enterprise that cuts out the
middle-man, and that works for
their benefit. The internationally
recognised form of enterprise that
does so is the co-operative.
There is a co-operative of carguards
located not too far away from
the for-profit business, although it is
not registered as such.
The way I found out about it is
illustrative of the values of those
who view the world from the deck of
a luxury yacht, and are opposed to
co-operatives, as they are to any
form of organisation premised on
values of human solidarity. I call
this class prejudice.
When I mentioned to someone
I met at a social function that I had
an interest in co-operatives as a
form of enterprise, she told me how
a well-heeled foreign visitor was so
delighted with the service a car
guard provided, that he gave a “tip”
of R100. There was, however, a condition,
on no account was he (the car
guard) to share this tip with his fellow
It was a just reward for individual
excellence, was the implicit message.
Equivalent to the just reward
of senior managers in the public
service or private sector CEOs.
The worker could easily enough
have heeded this condition, and
none would have been the wiser. But
he was one of some 15 members of a
co-operative. The understanding
between them was that all their
earnings were pooled, and the proceeds
divided between them at the
end of the week represented their
wage. So the values of co-operation
What was interesting about his
co-operative, was that its members
were not only both men and women,
but migrants from the Congo and
It illustrates how through organisation
a phenomenon such as xenophobia
can be addressed. Through
organisation there is a prospect that
workers such as these can make it
out of the fourth tier, and even
aspire to formality. But it is
necessary to distinguish between
different kinds of co-operatives.
In the case of the car guards, the
co-operative becomes the employer.
However it is not the employer in the
sense that there is an employment
relationship, because the members
themselves own the enterprise. It
can be thought of as collective selfemployment.
It is a different kind of co-operative
that a spaza shop or crèche
would need to form. This would be a
co-operative providing services to its
members, such as goods bought in
bulk, in the case of spaza shops, or
training and support to crèches and
child-carers. This is the obvious way
in which economic units in the third
tier could become more viable, and
None of this implies that a cooperative
does not have to operate in
a business-like way. After covering
wages and other expenses, the objective
is to realise a surplus.
But at least a portion of that surplus
must be retained in reserve. It
cannot be distributed among the
members for the time being. That
explains its not-for-profit character.
Moreover where surplus is
distributed to members, it is in
accordance with the members’
transactions with the co-operative.
It represents a different model of
capital accumulation for this and
Because it is owned by its
members, like other not-for-profit
organisations, it cannot be taken
over without their consent.
This is also why, in insecure
times, the public has greater trust in
not-for-profit organisations. This
might explain why, a few weeks ago
in the UK, the Co-operative Group
acquired Lloyds banking group,
rather than its scandal-ridden competitors.
Which brings me to another variant
of the class prejudice I have
described, which holds that co-operatives
do not work.
This is rather like saying companies
do not work, because there
are companies that fail, or that
trade unions do not work, because
they sometimes pursue sectional
There are plenty of instances of
successful co-operatives, internationally.
We should also not be
blind to the successful co-operatives
in our own midst.
Many of these co-operatives, for
political and other reasons, had converted
to companies prior to or soon
after 1994. Others did not. These
were among the 391 co-operatives on
the government’s register in the
2003/2004 financial year.
A year later the number had
increased by about a thousand percent,
to 4 052. This was when a new
Co-operatives Act was adopted. By
2011/12 this number was 43 062, an
increase so large it makes no sense
to express it as a percentage.
If this number of co-operatives
each provided employment to anything
like the number the car-guard
co-operative does, it would be easy to
imagine a number as great or
greater than National Treasury projects
its subsidy would create.
This would also be employment
at minimal cost. Self-reliance is
one of the core values co-operatives
It would, however, be an imaginary
number. The sad truth is that
no-one really knows how many they
employ. No one even knows for sure
how many of these co-operatives are
still operational, or how many were
set up in the hope of receiving government
grants, or even how many
of them are genuine co-operatives.
Certainly some are bogus.
Even so, it would be difficult to
explain the exponential growths of
co-operatives if they were not
responding to a real need, expressed
by people on the ground, in the
A state that cannot respond to the
needs of its people, or differentiate
the bogus from the genuine, is a
This is what we need to fix.
. This is the fifth in a six-part
series. Former trade unionist Theron
is a practising labour lawyer, and is
co-ordinator of the labour and enterprise
policy research group (LEP) in
the law faculty at UCT.