TRADED OFF: Consumers benefit from cheaper goods, but the benefit to an increasingly impoverished working class is debatable, says the writers.

Jan Theron and Shane Godfrey

South Africa is often said to have a strong civil society, but this characterisation leans heavily on the history of its transition to democracy, in which organisations like the trade unions played a leading role. It takes little account of the effects that the restructuring of the labour market has had on the institutions of civil society.

Take the trade unions, for example. The trade unions that played a leading role in the transition to democracy were able to do so because they were organised in the manufacturing and mining sectors.

It is organisation in these sectors that has defined the character of trade unionism and our labour relations system, including our system of collective bargaining.

But what has happened to these sectors?

The textile industry, for example, was formerly a major employer in the Western Cape and KwaZulu-Natal. It has shrunk alarmingly. What remains of the clothing industry is in crisis. The workers, most of them women, earn among the lowest wages in the manufacturing sector. But when the union tries to drive up wages at the bargaining council, the number of firms that disregard the agreement seems to increase or move to Lesotho or Swaziland.

The most visible manifestation of the crisis has been a highly publicised stand-off in the Newcastle area of KwaZulu-Natal, where manufacturers, mainly of Chinese and Taiwanese origin, have refused to comply with the bargaining council agreement, and are challenging in the high court the labour minister’s decision to extend that agreement.

It is convenient in a crisis to look for a scapegoat. The same people who gave us the myth that small businesses mop up unemployment propagate a related myth: that “millions” are prevented from working because of the minimum wages bargaining councils lay down. Now they have latched on to what is happening in the industry in Newcastle, as though it portended a rosy dawn in which workers would be free to choose employment at lower wages rather than not at all.

It is obvious that the manufacturers in Newcastle who do not have the resources to pay the bargaining council wage also do not have the resources to litigate. They are proxies for those who do. But why select this particular industry rather than others whose agreements are extended, such as road freight?

The cases of contract cleaning and security are instructive, since large employers in both negotiate with trade unions that do not represent anywhere near a majority of workers. The minister is then asked to legislate a minimum wage by way of a sectoral determination. Both are also industries with significant numbers of small businesses.

Is the intention to target agreements with unions that are seen as powerful, rather than the weaker and unrepresentative unions in contract cleaning and security? If so, the sponsors of litigation should be careful what they wish for. We have democracy not just because there are elections every five years, but precisely because organisations like trade unions are autonomous and retain some power.

We need more membership-based organisations representing disadvantaged people, rather than fewer. This is not to say the trade union is above criticism. Arguably it has relied too much on extending its agreements and too little on organising the workers concerned. It is bizarre that a company in which it has a major stake, Seardel, should be one of those to set up a factory in Lesotho.

Whatever the outcome of the litigation, it is unlikely to have any beneficial impact on the industry. Solutions can be reached only with the involvement of all the main stakeholders.

That is why, to trace the roots of the crisis, you have to go back to then-minister of trade and industry Trevor Manuel’s rejection of a development plan for the industry – forged by stakeholders in the early 1990s – on the grounds that it was “unaffordable”. At the same time the government pushed for a faster phase-down of tariffs than was necessary and to a lower rate than required by the World Trade Organisation.

You may not think it was in the national interest to allow the country’s capacity to manufacture to go down the drain. In effect, however, that was the approach government seemed to adopt: let “market forces” restructure the industry.

The beneficiaries were supposed to be “the consumer”. Of course consumers have benefited from cheaper consumer goods such as clothing; although the benefit to an increasingly impoverished working class, not to say the unemployed, was always debatable. Now that the market has restructured the industry, however, it is clearer who the real beneficiaries and losers are.

The first group of beneficiaries is a phalanx of intermediaries. Some regard themselves as dedicated importers. They procure clothing from China and other Asian countries, often acting as agents for the retailers. Sometimes they do so by bringing in clothing at well below market value because of what is termed “under-invoicing”. Insiders in the industry say “everybody knows who the guys are that are doing it”. Coupled with this are widespread smuggling. Efforts to end under-invoicing and smuggling have come to naught.

Other intermediaries are increasingly referred to as “suppliers”. This is a curious term, since a few years ago the manufacturers would have been regarded as the suppliers, with manufacturers in some instances subcontracting orders, or parts of orders, to smaller cut, make and trim operations (CMTs). Now intermediaries have become the suppliers, although all they supply is contracts for work and perhaps some expertise to a network of CMTs. These include the manufacturers of Newcastle, among many other places.

It is the suppliers, the CMTs allege, who are driving down wages.

To boost their profits, the suppliers must drive down what is paid to CMTs and play one off against the other. The response of some CMTs has not been exemplary. Using what is perceived to be a loophole in the Co-operatives Act, in terms of which the Labour Relations Act’s provisions do not apply to a worker co-operative, they have “converted” to co-operatives.

Given the amount of public attention focused on the manufacturers in Newcastle, it is puzzling there has been barely a mention of this extraordinary development. For if these firms were indeed worker co-operatives, there would have been a change in control. They would now be managed subject to the direction of workers, for that is what the law requires. The number of persons a worker co-operative may employ without their becoming members is also strictly limited.

Recently our researcher visited Durban and Newcastle and asked workers in these co-operatives whether they were indeed members.

The indications are that the “co-operatives” are bogus and the conversions a sham. As if to confirm this, workers at one of the “co-operatives” came out on strike while our researcher was there. Their demand was interesting: that they be made members of the co-operative and be entitled to the benefits of working for an enterprise they controlled, or their bosses complied with the bargaining council agreement.

We do not know the extent to which the suppliers are complicit in this sham, but if they were, they would surely keep this from the retailer. Their function is to shield the retailer from risk – and the risk in this instance is the reputational damage that would result if consumers knew the conditions under which garments are produced. It suits the retailer not to know whether an item is made by a compliant manufacturer.

Retailers are the prime beneficiary of restructuring “through market forces” because they, and the finance houses backing them, are the prime forces that are restructuring the market. They determine the price they will be prepared to pay a supplier for an item of clothing. The difference between the price the retailer pays the supplier and the price for which they sell the garment is their profit. Indications are it is well over half the selling price.

It is therefore no wonder the trade union and the employers have such a difficult time reaching agreement at the bargaining council. Relevant stakeholders are not there: not just the manufacturers who do not comply, but the suppliers and, of course, the retailers.

The “new wage model” that the employers’ association has placed on the bargaining table entails the introduction of a form of piece-work. This would not solve the crisis. What is needed is agreement on how the selling price of a “piece” is split between the retailer, the supplier, the manufacturer and the worker. In other words, agreement on what is fair for each segment of the value chain.

In negotiating such an agreement, the union and the manufacturers may discover they have more in common than they thought. But it is not likely such a negotiation will come about unless consumers begin asking questions and raising their voices – which means they need to be organised. The absence of such organisation is an illustration of the weakness of our civil society that is all the more stark considering the role consumer organisations once played in the Fattis and Monis struggle and in bringing about the transition to democracy.

For consumer awareness we must now look to the global North, to a fair trade movement that was in no small part inspired by the anti-apartheid struggle.

l This is the last instalment 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. Godfrey is a senior researcher with LEP.