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

youth unemployment.

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

for-profit enterprises.

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

trumped self-interest.

What was interesting about his

co-operative, was that its members

were not only both men and women,

but migrants from the Congo and

local coloureds.

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

generate employment.

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

another reason.

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

subscribe to.

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

poorest communities.

A state that cannot respond to the

needs of its people, or differentiate

the bogus from the genuine, is a

bumbling state.

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.