The idea of a social pact has been an elusive goal in post-apartheid South Africa… The current call for a social compact raises a number of questions. Are there specific conditions that make for successful social compacting? Why have the previous calls for social compacting failed? Are current conditions more favourable for a successful compacting process? What would the content of such a compact be? And what compromises are implied by a meaningful social pact between the state, labour, business, and civil society and with what goals in mind?
By David Francis, Imraan Valodia and Edward Webster
In his Statement on 21st April 2020, on further economic and social measures in response to the Covid-19 epidemic, President Ramaphosa suggested that our economic strategy “will require ‘a new social compact among all role players – business, labour, community and government- to restructure the economy and achieve inclusive growth”. Such a compact, Ramaphosa said, “will build on the cooperation that is being forged among all social partners during the crisis” (Ramaphosa 2020, 6).
Given the sharp racialized inequalities that have been so painfully revealed during the lockdown period, achieving consensus amongst the social partners will not be easy. The obstacles to a social compacting process are immense. How does one draw the large swathe of South Africa’s poor, marginalised and the informal economy into the pacting process? Clearly the Community Chamber of the National Economic Development and Labour Council (Nedlac) does not adequately represent these ‘communities’ (Webster, Joynt, and Metcalfe 2013). There are also significant differences within each social partner – within organised labour; within business (by race, size, rural-urban). Another fissure lies within the broad state sector itself, relating to macroeconomic policy coordination, or the lack thereof since 1994. How can we institutionalise mechanisms for greater coordination, especially given the constitutional independence of the South African Reserve Bank?
An ILO study on social pacting in developing and transitional societies concluded that
“… many conventional efforts to promote tripartism in the developing world through focused consultations on particular issues such as labour law reform, or through broader but essentially deliberative exercises such as the Poverty Reduction Strategy Programmes (PRSPs), may be missing a key element required for their success. Governments may want to consider putting wages – and the concomitant discussion of macroeconomic policy parameters – on the table to encourage the emergence of social pacts.” (Fraile 2010, 32).
The President gave little indication of what a post-Covid compact in South Africa would entail, but a useful point of departure would be to revisit the concept of social compacting, our experience of the concept, and what lessons can be drawn from South Africa and other transitional and developing countries.
The idea of a social pact has been an elusive goal in post-apartheid South Africa. Indeed, as early as 1996 the Presidential Labour Market Commission called for an Accord for Employment and Growth. The current call for a social compact raises a number of questions:
- are there specific conditions that make for successful social compacting;
- why have the previous calls for social compacting failed;
- are current conditions more favourable for a successful compacting process;
- what would the content of such a compact be;
- and what compromises are implied by a meaningful social pact between the state, labour, business, and civil society and with what goals in mind?
We need to recognise that the social structure of the labour force in the global South differs from that of the northern advanced industrialized societies. Where the latter has historically been composed largely of full-time permanently employed workers (represented in the main by national industrial unions), in the South a multiplicity of classes and class fractions exist: urban workers, the informal sector, the unemployed, small entrepreneurs, and peasants. The industrial working class is a minority, while trade unions do not often represent the majority of workers-let alone other strata. As a result, the principal agent of the Southern pact has been the developmental state, not the organized associations of capital and labour (Webster and Adler 1999, 354–55).
Importantly, a social compact is not possible unless all key actors perceive that the country is in a stalemate and recognize the need to bargain and make concessions (Webster and Adler 1999). But a pact could open up the possibility of a non-zero-sum solution in a labour surplus economy such as South Africa, where growth could be prioritised in a manner that generates sustainable jobs.
What were the processes that encouraged the concessions that enabled the political pact of 1994 to occur? South Africa had entered a stalemate where neither capital nor labour was able to secure their interests by pursuing their traditional demands through adversarial strategies and tactics. It is possible to identify six conditions that make a compromise possible (Webster and Adler 1999, 373–78).
- parties have to enter a situation of stalemate in which no one party is able to achieve its objectives;
- the stalemate has to lead to a situation where the costs of not compromising begin to outweigh the perceived gains in standing fast;
- parties must have access to – or be in a position to create – institutional arrangements that allow bargained arrangements to be reached;
- Organisations must be able to represent their constituencies effectively and be able to mobilize and restrain their followers according to the organizations strategic and tactical vision;
- it is imperative that individuals are willing to risk making strategic choices that may break with the organisation’s prior commitments;
- the international context must be conducive to the pact or, at a minimum, does not serve to affirm the parties’ unwillingness to compromise.
For such a compromise to take place, all parties must share a perception of stalemate and be willing to accept a suboptimal solution to the impasse. A Southern pact is likely to differ from the post-war historic compromise in Europe: it cannot simply be based on high wages and high labour standards for organized workers. Three different kinds of compromises have been suggested (Webster and Adler 1999, 370–78).
First, the introduction of a social wage to all citizens consisting of the right to income security; other forms of welfare such as education, health, and shelter; a right to share to the full in the social heritage; and the right to live in a safe environment. Secondly, allow a degree of “regulated flexibility” in the labour market- greater job and wage differentiation-In return for a minimum standard of benefits, thereby ameliorating the impact on workers of variation.
“Variation gives incentives to individual capitals-particularly in small, labour-intensive firms-to invest and create jobs, while the social wage provides workers at the lower end of the labour market and the unemployed with a degree of income security” (Webster and Adler 1999, 372). Thirdly, a requirement that capital relinquish unilateral control over investment and production decisions by embracing forms of co-determination at micro, meso and macro levels. In the absence of such joint decision making, it is likely that the surplus generated through wage stability would benefit capital alone rather than generate growth and employment creation. In return for labour gaining increased control over the distribution of the surplus, capital gains a more productive workforce and greater flexibility in the labour market.
What makes a Covid-19 social pact possible?
For a number of reasons, the Covid-19 pandemic may have created the conditions for a viable social compact in South Africa. First, the pandemic has accentuated an already precarious fiscal position on the part of government which may force the social partners into having to reach an agreement on important elements of a social pact including the levels and earnings in public employment (which until recently the public sector unions have not been willing to entertain), levels of social expenditure, and the need for increases in taxation among the upper classes. Until this point, discussion about a wealth tax or a social solidary tax would have been readily dismissed. Now, given the precarious fiscal position, all social partners are open to discussions about both expenditure reform but, crucially, revenue reform too.
Second, the power of local capital has been significantly attenuated by the pandemic. The number of businesses in South Africa that are likely to require significant injections of capital to survive the pandemic is high, and government has had to offer a number of credit guarantee, tax deferral and arrangements to tide-over enterprises in a cash-flow crisis. From seeing government as ineffective and a hindrance to the project of capital, business is now reliant of government support.
Third, while South Africa has had unusually high levels of unemployment for the best part of two decades, Covid-19 induced lockdown and the associated economic slowdown is likely to lead to a significant increase in unemployment, with some estimates forecasting unemployment of 50%. This, together with the already high levels of marginalization, precarious, and low-paid work, has created the conditions where more than half of the workforce are either unemployed or subsisting in the informal economy, which itself has been placed under severe stress due to the lockdown. There is now something of a realization that this ‘insider-outsider’ pattern of growth is no longer socially sustainable and that a more inclusive path for growth has to be found. For the last two decades, while there have been extensive discussions about a social pact, this has always been among the insiders – business, government and unions representing workers in the formal economy and the public sector. In the current crisis, voices representing the outsiders – NGOs, academics and activists – were instrumental in making the case for a temporary Covid grant to be paid to those in the informal economy and the unemployed (Bassier et al. 2020). If this impetus continues, the voice of marginalized grouping could well be brought into discussions about a new social compact.
Fourth, interactions between business, labour and government on the imposition of a lockdown and the phasing out of the hard lockdown in Nedlac has created both higher levels of trust among the key groups and also created an impetus for the development of a social pact. There are some persistent challenges, however. South Africa has a fourth partner in social dialogue – the community constituency. The intention of their inclusion is to represent the economic “outsiders” who are excluded from business, labour and government. However, there are serious reservations about the ability of this group to organise appropriately, and questions about whether they do in fact represent the economic outsiders at all.
Fifth, highlighted by Mazzucato (2020), there is a tendency for the costs of a crisis to be socialized but, rarely are these opportunities used to create the conditions for success to be socialized. The pandemic has raised a number of discussions among policymakers about using the process of socializing the economic costs of the pandemic to restructure the patterns of growth to enable greater socialization of profits. There are now discussions about curbing excessive ‘short-termism’ in corporations, regulating executive pay, democratization of the corporation, high levels of taxation for the very wealthy, and a basic income grant.
This suggests that contemplating a new social pact in South Africa is not necessarily futile. But important constraints remain. They key question is whether, in a fiscal crisis and with a highly contested political party system, the government is able to push through an agenda that is truly inclusive, and the costs for which are borne equitably.
Policy making in post-apartheid South Africa has generally been cautious and pragmatic, characterised by marginal interventions rather than any radical changes. Importantly it seems that a shift in government policy is taking place in the context of a changed international climate broadly supportive of more redistributive social and economic policies. There is tentative optimism that further radical changes might be possible.
Another important development is the changing balance of power between the insiders and outsiders. By some estimates, unemployment in South Africa could reach 50% in the next few months. There is increasing realisation that the tenuous inside-outsider arrangement cannot work anymore. The cost to the insiders from avoiding a new social pact is rising, as is the disruptive power of the outsiders. The decentralised nature of these protests and the lack of nationally representative organisations of the poor and marginalised, requires a rethink of the classic peak-level social dialogue model underlying Nedlac. Instead of conceiving of one grand national level pact, what may be required are multiple local level issue based and community led developmental pacts.
Serious constraints still remain. There are concerns both about the will and capacity of the state to lead a process of social pacting, and successfully implement the outcome. What is clear, however, is that the issue can no longer be avoided or delayed. The economic damage is becoming clear, and it is evident that it is beyond the bounds of traditional economic tools to address the socio-economic fallout. Above all, it will require new inclusive bargaining arrangements that transcend the insider-outsider divide.
- Agrarian South: Journal of Political Economy, Vol. 9, No. 3, 2020