A mystery of economics and morality

Andrew Kenny on our peculiar obsession with the NMW at a time of mass unemployment

Here is a mystery of economics and morality.

You are walking down the street in the small town when you see a man begging for a job. Without income, he won’t be able to get food to feed his family. You look away and walk past him. Nobody will say a word against you. Nobody will accuse you of any immoral behaviour. A week later you are walking down the street when you see another man begging for a job. You offer him a job at R3,400 a month in your small factory making cheap blankets for poor people. He eagerly accepts. Now he can properly feed and clothe his children. He is absolutely delighted. Now, for the first time, he has the dignity of formal employment. You have saved his life and his humanity.

For this you will be furiously denounced. You will hear a chorus of condemnation. “Exploitation!” “Sweat shop!” The job he has voluntarily accepted and can leave whenever he wants will be described as “slave labour”. “How can anyone live on R3,400 a month?” Investigative journalists, trembling with indignation, will write about the terrible conditions in your factory. They will thunder about inequality: “It is literally obscene that this worker only earns R3,400 a month when a CEO of Anglo-American gets a bonus of  --- million a year (fill in any large sum that trickles through your head). Never mind that you yourself earn less than the journalists. The trade unions will pillory you and try to shut your factory down. And of course, you have broken the law, since the minimum wage is R3,500 a month. You might end up in prison.

Why do rich and powerful people think it is more moral for a poor man in a poor area of the country to be unable to care for his family than to earn R3,400 a month? Why do they think poor people should not be free to accept any job offer they want? Why do the rich think they have got the right to dictate to the poor?

The social welfare grant for a child is R405 a month. If you ask how anyone can bring up a child on R405 a month, you will be told that this small sum can make a huge difference for poor people – which is perfectly true. Why then is R3,400 a month not allowed?

Every day in the cities and towns you see very poor people selling their pitiful wares on the streets, lucky to be earning half of R3,400 a month. You see other poor people in the informal economy earning as little. Yet there is never an outcry from the rich and powerful against these desperate activities.

SA’s unemployment is now 37% if you include those who have given up looking for work. Unemployment of those 24 years old or younger is 67%. This is catastrophic. It causes mass poverty, hopelessness and crime. It corrodes the fabric of the nation.

There are various reasons for the high unemployment, including abysmal education for most children and bad management of the national economy by the ANC government and the apartheid government before it. But the main reason is almost certainly our restrictive labour laws which shut the poor out of the formal economy. They make employing people too expensive and dangerous for small businessmen, who can neither afford high wages nor an expensive team of lawyers to deal the endless labour disputes caused by these laws.  They make it impossible for poor people, the vast majority of whom are black, to become formal employers. A particularly malevolent example is Section 32 of the Labour Relations Act. Its provisions are almost unbelievable.

Section 32 deals with the powers of bargaining councils, which operate in different sectors of the economy. The rich and the powerful are parties to these councils, the poor and the weak usually not. So a bunch of big businessmen and big trade union leaders from a sector, say mining or textiles, get together and decide on wages and working conditions for their members. Then they order – please note: “order” not “request” - the Minister of Labour to impose these wages and conditions on all the non-parties in the sector. The result, of course, is to squeeze small employers out of business.

So Mr Oppenheimer, a billionaire, offers Mr Van der Merwe, a skilled worker, a high paying job.  Ooh, Yes! Yes! The bargaining council accepts this. And Mr Shezi, a poor employer, offers Mr Sisulu, an unskilled worker, a low paying job. Ooh, No! No! The bargaining council will not allow this.

Minimum wages are yet another impediment to employment and will cause more poverty and inequality.

Not only do minimum wages and onerous labour laws cause poverty but they also increase inequality between the rich and the poor regions of the country. Some inequality doesn’t matter; it doesn’t matter that rich politicians or businessmen drive cars worth twenty times my car. But some does, and by far the most important inequality is between those who have got a formal sector job and those who haven’t. If you impose the same minimum wages on impoverished rural areas as you do in rich urban area, you are discriminating in favour of the rich and against the poor. A rich businessman in Johannesburg can afford to pay the minimum wage; a poor businessman in the Transkei cannot. So unemployment increases more in the Transkei and the residents of that area have to move to the big cities if they want to find work.

Suppose in 1980 there had been an authoritarian world government centred in the USA and headed by Donald Trump. Trump decreed a world minimum wage based on the wages of American workers in New York. No country in the world was allowed to pay less than this. The result would have been to prevent China and other countries lifting hundreds of millions of people out of poverty. Most people in the world would be much poorer than they are today. But Trump could have posed as a moral saviour, only wanting everyone in the world to earn a “decent wage”.

The reason big businesses and big trade unions welcome these wicked laws is pure self-interest. They keep wages high for those lucky enough to be employed, so increasing the income of the union leaders, and they shut small businesses out of the economy, so removing competition for big businesses.

But why do academics, journalists, politicians and moralists favour them too? Here the reason is very deep. Throughout history, all over the world, there is always an elitist section of the population, a sort of self-appointed ruling class, that despises free trade and business. They think businessmen are vulgar and venial; they look down their noses at anyone who works with his hands in a factory; they sniff at traders and merchants. They are highly snobbish. These are the people who rant against “capitalism”. But capitalism is nothing other than free economic intercourse between ordinary people, trading, employing, co-operating and doing business voluntarily with each other – and this is exactly why the snobs hate it so much. They don’t want ordinary people to choose for themselves; they think they’re too stupid and greedy. They want to choose for them. They like state control, which is why they like socialism. These snobs populate the professions (except engineering), the media, politics and, above all, the universities.

Their fierce snobbery, their deep hatred for business rules all their economic thinking. This is the reason they favour laws that shut poor people out of the economy. Academics sometimes present bogus arguments, feebly supported by convoluted special cases, showing the minimum wages don’t cause too much unemployment. This is nonsense; the reason they support minimum wages is a belief that superior people such as themselves should decide the fate of inferior people. They’d like to have a purely socialist state but at present this is not possible. So they allow the rich, people in the same economic category as themselves, to join the capitalist economy. Rich businessmen, after all, do wear proper clothes and have respectable accents and tastes. But poor businessmen! Oh, no! So they don’t allow them to join the capitalist economy. However, they are quite content for poor people to get meagre amounts of money in social grants; and this is because the provider is the state, which they regard as paternal and respectable. They also don’t seem to mind, too much anyway, street vendors and other downtrodden people working in the informal economy for incomes way below R3,400 a month.

Country after country in the Far East and elsewhere has shown exactly how to lift hundreds of millions of people out of poverty. The method is simple: you just allow them to do business freely among themselves without restrictive labour laws. This quickly develops manufacturing and industry, exactly what South Africa needs. Poor people, once employed at low wages, become skilled and experienced, and so can command higher wages, and so become prosperous. China since the relaxation of communist control has given a spectacular example of such economic advance.

The way to improve our stagnating economy, to relieve poverty and to reduce our appalling unemployment is simply to unchain our working people. Set them free. Break the shackles and manacles of our wretched labour laws and our oppressive minimum wage. Give poor people the same right to choose that rich people enjoy. Open the formal economy to everyone.

Andrew Kenny is a contracted columnist to the South African Institute of Race Relations.



1. Unemployment stats from SAIRRR, 2018 Survey. The latest government release on unemployment shows no change.

2. Section 32 

Section 32 of Labour Relations Act

(my emphasis)

32. Extension of collective agreement concluded in bargaining council

(1) A bargaining council may ask the Minister in writing to extend a collective agreement concluded in the bargaining council to any non-parties to the collective agreement that are within its registered scope and are identified in the if at a meeting of the bargaining council request, I

(a) one or more registered trade unions whose members constitute the majority of the members of the trade unions that are party to the

bargaining council vote in favour of the extension; and

(b) one or more registered employers' organisations, whose members employ the majority of the employees employed by the members of the

employers' organisations that are party to the bargaining council, vote in favour of the extension.

(2) Within 60 days of receiving the request, the Minister must extend the collective agreement, as requested, by publishing a notice in the

Government Gazette declaring that, from a specified date and for a specified period, the collective agreement will be binding on the non-parties specified in the notice.

3. My car is a 1984 Suzuki SJ410 (like a little jeep). I bought it in 2000 for R27,000. It might now fetch R30,000 – maybe.