Discussion on a Framework for Social Partnership and Agreement-Making in Nedlac

Status and Purpose of this Document

This document has been produced by the Nedlac secretariat and is tabled for the consideration of the constituencies participating in Nedlac. It has been developed in a consultative manner, and has reference to the thinking and discussion taking place in each constituency. It should, however, be regarded as a contribution from the secretariat, which does not seek to bind any of the social partners.

The document is an input into the discussion on the strategic vision and framework for social partnership in Nedlac. It aims to stimulate debate and discussion about the terms and content of social partnership, leading to formal and implementable agreements between the constituencies.

THE NEED FOR A STRATEGIC FRAMEWORK

Each constituency in Nedlac has the same broad goals of creating jobs, economic growth, equity and participation by civil society in the political and economic reconstruction process. These are clearly stated in the founding declaration adopted at the launch of Nedlac in February 1995. By establishing Nedlac, the constituencies have also made a commitment to an ongoing joint problem-solving partnership to address the challenges of bringing about jobs, growth, equity and participation.

Addressing the challenges of unemployment, poverty and crime, as well as low productivity, low economic growth and low rates of investment, requires the social partners to have a common approach to our broad goals, how they can be achieved and how each of the constituencies can contribute. Social and economic policy making has been characterised in the past by conflict and adversarialism. This reflects the era from which South Africa has emerged - an era based on sharp inequalities and polarisation. In creating Nedlac, the social partners have acknowledged that each have the means to both enhance or hinder the transformation process. Cooperation between the constituencies towards a common approach must be based on an explicit recognition by the constituencies of the need to work towards a longer-term vision, and to consider the need, where necessary, for specific shorter-term trade-offs to achieve this vision.

The essence of the social partnership, in fact, consists of a cooperation between the key social forces based on an exchange of clearly defined trade-offs made by each constituency. Agreements should be made which go beyond the different and potentially conflicting interests of the constituencies and instead seek a partnership which in a long-term perspective produces a higher value than that which each party can reach on its own. This approach to agreement making can only succeed if the constituencies act within an agreed national framework. The specific elements of such a framework agreement could include issues such as productivity, training, wages and benefits, prices, public services such as health and education, etc.

International experience has much to offer in this regard. Scandinavian governments have kept prices and inflation under control in exchange for economically and socially sound wage policies implemented by unions and employers. The Australian government and unions likewise linked the social wage, wage restraint and investment policies in relation to each other. Our own approach to social partnership, while drawing on the lessons of international experience, must be based upon our own specific national needs and priorities which lead us to a mix of processes and agreements that are relevant to the specific needs of transformation in South Africa.

The founding declaration adopted at the launch of Nedlac is now acknowledged as an insufficient framework for negotiation and consensus building among the social partners. This document initiated a process beginning with the launch of Nedlac. We now need to move from that and the hard won success of the Labour Bill to the development of a more effective platform for social partnership and agreement making in Nedlac.

The framework we develop should be broad enough to allow for detailed bargaining and agreement making in Nedlac's chambers, at sectoral level and at enterprise level and should be sufficiently specific to provide a practical basis for action. It should give practical direction to the ongoing work in Nedlac's chambers around detailed specific agreements. It should be sufficiently developed to assist in identifying specific issues for negotiation in the chambers (as well as at a sectoral or workplace level) and should provide a meaningful set of parameters for discussion on each issue.

The framework should provide us with common assumptions and a common terminology, and should assist agreement-making in Nedlac. It should boldly seek to identify specific trade-offs between the constituencies at the national level. This current attempt to develop a common framework will not be the last word on the subject but should be capable of amendment and extension, in accordance with developing circumstances. Indeed, it should be seen as the building block for a series of further specific and broader agreements.

ROLE OF NEDLAC

Nedlac is a vehicle for the social partners to mobilise their constituencies into an effective joint strategy for social and economic transformation. As a unique and historical experiment, Nedlac has already proved to be more than a one-off attempt to "find a solution". It has a vital longer-term role to play in bringing about, sustaining and extending the cooperation between powerful social forces. "The solution is not the answer", says a respected US conflict resolution expert. The key is the machinery or methodology that produces solutions when issues have to be addressed. While several other countries have chosen the route of focused accords, we have created an institution to act as the ongoing facilitator of agreement making at national level.

Nedlac has to provide an ongoing opportunity for the parties to engage in this process, to build their capacity and their resources, and to incrementally broaden the scope of their agreement. The capacity of each constituency to engage their membership actively in this process must be strengthened as a vital aspect of agreement making.

On the other hand, processes must be designed which take into account both what is possible through social partnership, and what is needed for constituencies to participate effectively.

THE NEED FOR CONCERTED AND URGENT ACTION

We have reached a moment wherein the leadership of each constituency is willing to consider the possibility of making short-term trade-offs and of mobilising our collective resources in order to create a longer-term outcome which will deliver employment, economic growth and uplift the living standards of all.

The current reality against which we are attempting to create this social partnership does not by any means point to the inevitability of success. We are a society polarised between those who enjoy an exceptionally high standard of living, as compared to those who are excluded from access to even the most basic services needed. The scale of the transformation required is almost overwhelming, yet at the same time the pressure for rapid delivery is mounting.

There is no other alternative open to South Africa except to seek a meaningful social partnership. To undo the legacy of apartheid, and to cope with global economic developments, it is vital to both the self interest of each constituency, as well as the interest of society as a whole, that the major social forces in society cooperate with each other.

While the demand for "delivery" increases, the opening of our markets and economic restructuring has put pressure on existing jobs and incomes. We do not have the luxury of a lengthy period of time to plan how to engage in economic transformation - many mines and factories are under pressure to close now. It is a matter of the greatest urgency to find solutions to these pressing problems.

KEY PROBLEM AREAS

We attempt below to identify those key problems which form the basis for strategic and joint action between the social partners. These problems lie at the heart of the transformation process, and will need to be addressed over a period of time through a variety of strategies. High expectations exist in respect of the government as well as companies and civil society organisations for delivery of economic and social benefits. Wild cat strikes, high and increasing crime as well as social instability show us that urgent steps must be taken to address these problems:

Unemployment, estimated at about 30-40 per cent of the economically active population. Only 10 per cent of new entrants to the labour market find employment each year. This means that unemployment is increasingly also becoming a youth problem. Short-term "mopping up" measures such as public works projects and job creation schemes play a useful, but limited role, in creating employment. More drastic strategies have to be identified. A further challenge is also to address not only more jobs, but better jobs for those currently in employment.

Low savings and investment - levels of investment, and savings to support investment, clearly constitute a fundamental issue with respect to economic growth and job creation. Factors which will elicit investment of sufficient magnitude and of the right nature to foster economic growth which is employment-intensive need to receive considerable attention.

Poor access to basic services and infrastructure, as a result of poverty and apartheid's exclusion of the majority of the population. More resources have to be devoted to address this, while careful consideration should be given to the responsibility of the state, what other resources can be mobilised (individual, community, companies and organisations), who should be covered by public benefits and whether benefits should be paid out in cash (like pensions) or as public goods (hospitals, schools, etc.).

Low productivity, with companies ill equipped for reintegration into the world economy, and unable to effectively service domestic and regional markets. They are competing against foreign companies, both abroad and at home, who are often better organised, skilled, equipped, and often with lower material and labour costs.

TOWARDS AN AGREED FRAMEWORK

Our main strategic objectives, in addressing the problems mentioned above, must be:

• A strategy for growth and development at levels substantially above 5%, to attract significant levels of new investment which creates substantial numbers of new jobs;
• A strategy to improve incomes generally and to create a higher level of equity, and to increase the productivity and labour absorbing possibilities of the labour market.

Below is a discussion of some key areas which should be considered in the context of an agreement making framework. As discussion and debate ensues, other areas may also be identified.

1. WAGES AND incoMES

   We start with this topic mainly because it is usually the most controversial and difficult. South Africa has a turbulent and adversarial industrial relations climate, fueled mainly by the conflict over wages and conditions of work. It is a fact that, over the past decade, apart from political campaigns, much of the strike action has been over wage increases. However, despite numerous struggles, at great cost to workers, companies and the country, it is still true that in general workers have not increased the value of the goods and services they can purchase in real terms. In a context of negative growth, however, workers have done much better than the increasing number of unemployed and the poor.

   The new labour law will do much to make industrial relations more stable and peaceful. However, it does not resolve the growing conflict between workers and employers regarding job security and real wage gains, versus productivity. At the heart of this conflict lies the fact that real wage gains are linked to improved productivity of companies. Behind the barriers of high tariffs and limited competition, companies previously had the option of passing on increases in costs of wages and other inputs to consumers. Now that companies can no longer simply increase their prices, they must find ways to either improve their productivity or cut costs. This struggle must, in the final analysis, be considered against the country's interest in creating additional new jobs and attracting additional new investment.

   To produce an agreement which successfully addresses this issue requires that the members of each constituency should get a satisfactory answer to the question "what's in it for us?" A starting point in seeking a solution to this dilemma would be an approach which promotes improvements in real incomes for workers, increased productivity of companies and which encourages employment of new workers. To do all of these things at once is far easier said than done.

   In this light, we need to consider the outcomes of annual collective bargaining. During this past year, a number of pioneering agreements have been reached. This creates the possibility of developing an agreed national framework for collective bargaining that promotes certain outcomes in industry level negotiations, or at the minimum provides a "menu" of options for negotiations at industry level. This could for example involve linkages between wage gains and skills development (as in the auto industry agreement).

   In addition, we need to explore the relationship between the bargained wage and the complementary role of the social wage .The test for workers is whether they are in the long term better off and have improved total incomes or "wealth" as a result of the package of trade-offs being considered. Such a package could possibly include lower prices on specified consumption goods, food and necessities they have to buy, reduced prices and/or improved quality of public services, schools, health care, and hospitals they benefit from, public pension plans, retirement funds (which even in the short-term perspective will reduce their maintenance burden for family members), or access to skills and training which will give them a higher wage pay-out in a long-term perspective.

   Such an approach will benefit business by making more retained earnings available in a short-term perspective for investments. Such a wage bargaining policy, underpinned by a floor of social benefits, could provide a basis for outcomes which improve the position of workers as well as enable companies to generate sufficient profits to make the creation of additional investment and employment possible. Inflation could also be targeted in this context, without negative consequences for employment if it is linked to such a framework.

   This suggests an approach to wage increases which provides that increases are related to inflation, and inflation control (although this does not imply that increases would be indexed to the level of inflation), to skills gains (which are related to productivity) and to establishing a floor of improved social benefits which are provided by the state. Such an approach to collective bargaining could form part of the national framework referred to above.

   An additional component of this discussion is about the levels of bargaining, with the notion that Nedlac could begin to act as a third tier of bargaining by setting guidelines or developing options at the national level which empower bargaining which is taking place at the sectoral and workplace level.

    

2. INVESTMENT AND CREATING JOBS
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     • The instruments for supporting and promoting small enterprises.
     • An accord (which is currently being considered) with the financial institutions on issues such as trade-offs between lower short-term investment returns in exchange for long-term job creation and higher profits, particularly related to infrastructure development. In encouraging private sector investment, there is a need to develop the concept of an accord for private sector investment in infrastructure which brings in the financial institutions, government, and trade unions. (Attention should be given to the multiplier effects in industry as well as the social stabilising effects of such a focus.)
     • The state's activity within certain sectors (infrastructure, housing, etc.) must be clearly defined. Particularly in respect of housing it is not realistic to expect the financial institutions to invest in respect of those people who have neither jobs nor money to afford to buy a home, however reasonable the price may be! Much of government's attention in housing has been focused thus far on developing a market which enables private sector investment and lending. This does not cover the bottom end - the unemployed and the poorest who have no option but to look to the government to directly meet their needs. Therefore, a distinction needs to be drawn between what the private sector should do and what government must do. An active role for the state in providing rental housing may be required in this case. The other side of the coin in this discussion relates to the capacity of local producers to meet the demand for increased production, as well as the capacity of local institutions and authorities to plan, make decisions, and implement programmes.
     • It may also be necessary to consider a set of strategic interventions to attract investment and to stimulate employment, including targeted incentives.
     • Related to this approach, a targeted policy could be devised to promote the employment of additional workers, by means of training subsidies, or even wage subsidies for vulnerable categories of workseekers, etc. These could be targeted to small employers or for vulnerable groups of work seekers. These measures need not be at odds with fiscal discipline but could serve as creative (but fiscally sound) variations enabling us to address urgent and immediate issues.
     • An additional key aspect of a package of agreements is ownership, and the extent to which worker share ownership and participation in Boards of companies is promoted. This has both an income dimension as well as providing a valuable incentive to unions and workers to "buy into" a longer-term strategy on wages and incomes as discussed above.

   • The creation of new jobs requires new investment, and a growing economy. However, growth by itself does not necessarily produce a related increase in jobs. Recent figures show that the rate of manufacturing sector investment has increased considerably, yet employment gain has been minimal. We need a strategy for economic growth and investment which delivers significant growth in the rate of employment.

     While all interested parties tend to, and to some extent have been forced to, look at their own interests and priorities in short-term perspectives, a higher value outcome could be obtained by all groups if they are able to relate their interests to a longer-term agreement. Could a strategy be devised to promote economic growth and investments directed at job creation, decent wages and working conditions as well as achieving sufficiently attractive and competitive returns on investment?

     There are different categories of potential investors, each of whom impact differently on employment creation, and respond in different ways to particular strategies.

     First, the big manufacturing companies tend to invest mostly in capital intensive operations, a situation which appears to be exacerbated by current exchange control restrictions. In the process of building up their competitive capabilities bigger companies have been restructuring into "leaner" more cost efficient enterprises. Consequently, they are currently not generating additional jobs and may not do so for quite a while yet. International trends are towards bigger companies employing less workers.

     Secondly, the small and emerging companies may on the other hand, have a larger potential to contribute to new employment but face significant obstacles in obtaining access to markets which are dominated by big players, costly infrastructure and services, as well as constrained access to finances, and are limited by a lack of support services which they need. In addition, the current structure of the labour market imposes a high entry cost for small enterprises.

     Thirdly, foreign investors are showing signs of greater interest and have started to increase their medium to longer-term investments. Foreign investors often raise the issue of security, taxes, exchange controls, labour relations, wages and instability as deterring factors. Not all potential foreign investors are worried about the same things. We compete for investment with both developed and developing countries. This implies that we need a competitive mix of features whereby the positive features which attract investment outweigh the perceived risks. In the short-term, attracting foreign investment may require a more active strategy, with a package being offered that helps offset the risks and their cautiousness.

     Fourthly, the pension funds and financial institutions who serve as the channel for the bulk of our precious domestic savings. For them the bottom line of returns is also a key factor. Despite exhortations to invest in infrastructure, they insist that the obstacle is not their unwillingness to invest, but simply shortcomings in the market or in real productive investment opportunities. However, there is probably room to consider investment strategies which promote the establishment of new enterprises and creation of new jobs.

     In general, investors will evaluate the political and social stability in our country, violence and crime as well as economic and financial policies regarding taxes, regulation of goods, services and ownership, and the cooperative efforts of the constituencies in addressing these issues. We need to reduce fears of unrest and violence and create a climate which encourages job creation in productive, sustainable, labour friendly employment.

     An agreement concerning wages, employment, training and skilling, inflation and investment policies will not only create a more stable labour market for foreign and national investors, but will also make their potential investments more easy to assess in a long-term perspective.

     Specific areas to be explored in this discussion include:

3. REPRIORITISING GOVERNMENT EXPENDITURE

   The reconstruction and development programme (RDP) calls for increased provision of services and infrastructure, especially to those who have been denied proper access to it in the past. With a high level of debt and interest payments, the government seeks to meet these needs while maintaining fiscal discipline. Government expenditure was previously biased towards security rather than social needs, and towards consumption rather than capital expenditure. The pattern of government expenditure must be urgently reversed.

   Hard decisions must be taken. These will impact on the interests of different interest groups. There is a tension between a strategy of increasing government spending on infrastructure and services, and fiscal discipline. Unless the resources are found, through reprioritising expenditure or raising additional revenue, it has to be accepted that delivery will be limited.

   Firstly, there is a need to rigorously evaluate the demand for government spending. In general, there is an increased need for resources to be made available to employ more health workers, teachers, police and to increase the provision of infrastructure, housing, and municipal services. In addition, there is the related issue of wages, benefits, conditions of service, and pensions of public sector workers.

   There is also a case for reduction in government spending on defence, eliminating certain subsidies, unnecessary (or even just dispensable) administrative functions, reducing the number of embassies, even considering the size of Parliament, Senate, the provincial governments, whether it is affordable to separate Parliament and the administration, etc. It is also necessary to consider the position of those civil servants in the former homelands who appear to be redundant as a result of the relocation of government following the elections.

   A mechanism should be agreed to prioritise the areas of public expenditure. In some areas, there is a need for increased services, in others we have surplus employment. On the basis of scarce resources, the size of the public sector must in the future be seen in relation to the working conditions, wages and benefits of those working there as well as the quality of the services they provide. This implies controversial, but necessary discussions of retrenchment of some civil servants, new employment in specific sectors, and decent remuneration and skilling of workers.

   Secondly, there is a need to consider how the state finances its expenditure. Given that the demand for increased services may well exceed the value of expenditure which is to be cut, there is a real pressure on how the state finances its expenditure, i.e. how much by taxes, how much by borrowing, how much by selling off its stake in publicly owned assets.

   In respect of taxes, one opinion is that the overall ratio of state revenue to GDP cannot be increased without political opposition or damage to the economy. One the other hand, others argue that the rate of the tax burden in our country is relatively low in an international perspective. While the weight of the tax burden may be shifted by a more progressive arrangement, this does not increase the amount of revenue the state collects. The degree of progressiveness of the tax system, the total tax burden, the taxation basis; wealth, goods or wages are all elements that must be considered in a discussion of a taxation system which takes into account the political costs and economic gains. The "tax burden" must also be qualified in relation to what people get back from the public sector through their own or their family's public services, health and education.

   It is argued by some that borrowing from foreign sources, where our current debt obligations are quite small, may be an option. There is an argument, based on the policies followed in Europe and elsewhere after the War, that a programme of government borrowing for productive investment could create levels of growth (and employment) that would justify this option and earn additional state revenue to pay off these loans. This presupposes that we have the institutional capacity to spend the money effectively, something our current difficulties in spending the RDP monies puts in question.

   A counter argument raised against this strategy is that foreign borrowing is more expensive than borrowing locally, and that in any event it still has to be paid back with interest. Given that almost 20 per cent of our budget services interest repayments,this would be a problematic option. Both foreign and local borrowing contribute to the debt trap. This debate is of great importance and needs to be conclusively dealt with. Should an investment orientated foreign borrowing strategy be seen as a viable option, it may well provide for the possibility of mobilising funds that can be invested in ways which take our rate of growth above the three per cent threshold. In order for this to succeed however, we would have to strengthen our own institutional capacity to spend the money effectively.

   The sale of certain state assets could likewise generate the revenue needed, whether it is applied to paying off the debt and thereby reducing our interest payments, or for additional investments. However, it may not be a viable option, not only from the point of political opposition, but it is debatable what amount of revenue could realistically be raised through the sale of state assets. In this case there is a longer-term balance to take into account regarding the income these state assets would earn over a few years versus the income to be earned by selling them now.

   There is also a debate over the strategic importance of these utilities in implementing the new programmes. Privatised utilities may not necessarily be effective in addressing the needs of the poorest and the cost of extending these services may increase if the utilities were privatised. These calculations and investigations should be addressed pragmatically and with specific reference to each of the state owned enterprises.

4. TRADE AND INDUSTRIAL DEVELOPMENT
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     1. This document is tabled at the 13 October 1995 Management Committee meeting. This meeting should pay special attention to and make decisions on the proposed process and time frames.
     2. A steering committee meets in early November to review the process proposals based on constituency discussions.
     3. The 30 November Executive Council considers the document and the proposals for taking it forward.
     4. Constituency meetings are held between November and January. Each constituency should develop a written input which identifies, inter alia:
        1. Core issues which each constituency wishes to obtain agreement on.
        2. What the other social partners need to deliver on.
        3. What trade-offs are capable of being exchanged.
     5. Steering Committee meets in January 1996 for further planning. At this stage the committee should be able to highlight key issues emerging in discussions in the constituencies so as to enhance preparations for the Bosberaad.
     6. Senior bosberaad to be held in January or early February 1996. The bosberaad should:
        • Consider the input discussion document.
        • Consider the responses from constituencies.
        • Consider inputs from international participants (these could be either at the level of "experts" or those individuals who were at the very centre of similar processes).
        • Begin to identify areas of commonality and areas for further debate and consideration, and the process/processes required.
     7. Conclusions from this phase of the process to be reached by an Executive Council meeting in February/March 1996. This Executive Council meeting to be followed by a National Summit.
     • Measures must be taken to level the playing field so that local companies can obtain their inputs of materials at least at the same cost as foreign manufacturers. Supporting "supply-side" measures should also be put in place to help companies adapt to the changed requirements. This should include lower raw material pricing, lower cost of services and lower transportation costs. Support is also needed to maximise the skill and productivity of workers, as well as to develop better ways of organising and running enterprises.
     • Specific sectoral strategies, although controversial in some quarters, need to be considered and linkages such as those between infrastructure spending, e.g. housing construction, and industrial capacity and development, e.g. the building and metals industries be promoted as a public policy objective. In the context of debate over the concept of targeting, we need to consider whether more labour absorbing sectors should be favoured relative to capital intensive sectors.
     • Technical barriers to trade should be evaluated, especially our national standards and the extent to which our standards comply with international standards. Industrial standards as well as health, safety and environment standards increasingly regulate access to international markets. Such standards have also often been used in common strategies by business, labour and governments in order to protect national markets from imports. Our negotiations over market access to the EU and other markets should take note of this issue.
     • An overall strategy involving the phased opening of our markets could be defined; obtaining access to other markets; the linkages between trade liberalisation, supply side measures and strategies to alleviate the social consequences of restructuring. Clear approaches, guidelines, procedures, tests and time frames could be formulated. This could also lead to joint participation in bilateral and multilateral negotiations over trade relations, and market access, etc.
     • Serious consideration of these strategic issues within each constituency.
     • Accessing of the lessons of international experience.
     • Consideration of these strategic issues at Executive Council meetings in November 1995 and February/March 1996 and at a senior Bosberaad in January/February 1996.
     • Opportunity for discussion within the rank and file membership of the constituencies.

   • A fundamental policy shift has occurred with South Africa's acceptance into the world economy. Historically, our manufacturing sector developed on the "high protection/ low wages" model. We have now collectively embraced a strategy of reducing the level of protection of industries and increasing the pressure of competition. In the longer-term, this is intended to lead to the manufacturing sector developing an international perspective and to compete for market share on international markets, not just domestically. However, this strategy also opens up our own market to competition from foreign companies which can sell their products at a cheaper price and/or better quality.

     A strategy is needed to enable South African companies to adjust to the lowering of protection and become competitive, and which provides for the social and employment consequences of trade liberalisation.

     Such a strategy could include:

     Following on the earlier discussion above, it is also reasonably clear that the restructuring and economic changes taking place in manufacturing (and also in mining and agriculture for that matter) will lead in the short term to a net job loss. This strategy discussion should therefore be linked to urgent and immediate measures to boost job creation in the private sector, either through strategies in infrastructure development or tourism, or through specific job promoting mechanisms such as the wage subsidy which promote labour absorbing rather than capital intensive methods.

     TAKING THIS DISCUSSION FORWARD

     Developing this strategic framework will take place side by side with the ongoing work taking place in the chambers. In many areas, issues identified for discussion in this document have already started to receive attention in the chambers. This interaction between a strategic discussion and detailed negotiation is healthy and can produce an enriched practical and implementable result.

     In general, for this discussion to be further developed, it is proposed that the process should entail:

     Against this background, the following process and time-table is proposed:

     Johannesburg 16 October 1995 Discussion document