An economic recession is a signal that governments needs to adopt a hands-on approach in managing the economy 

8 June 2017

The recent announcement by Statistics South Africa, that the real gross domestic product GDP (measured by production) decreased by 0,7% in the first quarter of 2017, following a decrease of 0,3% in the fourth quarter of 2016 should act as a wakeup call for our government. This fall in production in at least two consecutive quarters means that technically we are technically in a recession. The largest negative contributor to growth in GDP in the first quarter was the trade, catering and accommodation industry, which decreased by 5, 9% and contributed -0, 8 of a percentage point to GDP growth.

COSATU believes that the recession shows that we cannot rely on an economy, which is based on unrealistic free market economic principles to solve the issue of poverty, unemployment and income inequality.  Therefore, we argue that the main cause of recession is the absence of government intervention in the economy and the failure to put policies that are going to allow the millions of the currently sidelined people to participate in the mainstream economy.

There is no economy that will grow if there are 9 million people representing almost 27% of the population, who remain excluded from participating in it and earn a living. While the majority of the workforce 60% earns very little{less than R5500} it is unrealistic to expect the social order to hold and the current situation to be sustainable. It would be idealistic to we expect this economy to grow, with only 15 million people employed while 17 million people are on welfare. There is no demand that can be created in an economy like ours, where workers cannot afford to buy the very same goods they produce.

This economic recession will likely result in higher unemployment rates and lower wages and also the closure of some factories.  The data about the recession would be used opportunistically by companies retrench workers. In response to the recession, COSATU would like to see government stimulating the economy by increasing its investment in the economy. This should be done through the use of infrastructure projects to create decent permanent jobs and also by increasing social grants.

There should be an increase in the allocation of funding for the “training of layoff schemes” and an in increase wages to motivate workers and increase demand for goods and services. The more money workers have to spent the better for the economy.

Government needs to provide funding for worker cooperatives so that they can take over closed factories or those in liquidation/insolvency. We should nationalise companies in key sectors of the economy in order to retain skills and jobs.

A long term solution will be to replace our market based economy with an economy that is owned by workers instead of a privately run economy, which is anti-working class and anti-poor and which places profits above all needs.  Therefore a new socialist economy policy is needed to take the economy out of recession. One of the countries that averted the 2009 recession was China because it has a socialist economy and also Germany which has an economy that is characterised by huge state intervention and an expansive welfare system.   

In response to the 2008 financial crisis the SA government concluded a social compact agreement in 2009 with labour, community and business constituencies at Nedlac- the framework for SA’s response to the international economic crisis of 2009. We need another summit to discuss jobs and how to ensure that big business end their investment strike.

Unfortunately, while the GDP is a big deal and a serious matter, it is also a false measure of the economic performance because it does not address the issue of the distribution of income, the quality of education health and social services. However, the use of GDP is consistent with Treasury’s policy of no redistribution before growth. The labour market has been in a recession since 2009. The unemployment rate has hovered around 25% for more than 7 years and vulnerable non standard employment e.g casualisation and short time work have been on the rise.

COSATU will ensure that this technical recession is not used to lay off workers. But we shall make sure that it results in an increase in wages, immediate implementation of the National Minimum Wage, and an end to government’s freeze on new jobs.

Government policies should target employment instead of only looking at managing inflation and the Reserve Bank should impose capital controls to stop the country haemorrhaging money. Government should impose wealth taxes on the rich in order to redistribute wealth which is concentrated in a few hands.    

The recession is a signal to the poor and the working class to take up control and ownership of the economy from the elites with a view of producing goods and services that are needed by the masses and not for profit maximisation.   

Issued by Sizwe Pamla, National Spokesperson, COSATU, 8 June 2017