I recently heard a radio journo ask a regional Cosatu leader and senior politician whether strike action threatened by one of his member unions was economically sound and in union members’ best interests. He put it to him that the costs – not only to business and the state, but to employees themselves (the union official’s very own “flock”) would be prohibitive because of job losses and the inevitable restructuring of operations if union demands were met.
Pressing him for an answer, he continued “.. surely you must realize that these things are going to happen, because it is basic economics – do you realise that?” The answer he got was, at the same time salutary, disarmingly honest and disturbing.
He was told that – in his (the union leader’s) view – economists can never agree on anything and there are so many economic theories “out there” that he did not feel inclined to engage with any such arguments. All that was important to him was that union demands be met – and woe betides those who got in the way!
Frankly, no one could have said it better – or with greater irony. His words spoke louder than any rational counter-argument could have, and provided a compelling indictment of organized labour.
For many with regular exposure to union officialdom this was probably no revelation – for I am reminded of interactions between management and union officials where the default setting was an ever truculent confrontation with plenty of ritualistic recitation of the evils of “inequality”. Such dealings were invariably laborious affairs with shifty characters grandstanding for their acolytes, turgid and irrelevant arguments being exchanged with slow moving agendas and the strenuous avoidance of any debate invoking business logic or economic reasoning.
A key objective of such negotiations seemed always to be to waste as much time as possible since for business, time equals money and stealing time pisses off anyone conscious of wasting resources.
Alternative approaches – like what strategies might best sustain employees and employers in the long term – were seldom up for debate and immediate union “demands” always trumped common sense. Despite their absurdity, such admissions cannot be laughed off because – contrary to what the union movement would have us all believe – the well being of members is clearly not its focus. It uses members (employees) as fodder to stoke conflict with employers, regardless of outcomes to them, with objectives that are palpably political and at great cost to the poor.
I find it useful to employ basic economics to portray the effects of union activity and explain what those in government have tended to dismiss over the past two decades as “unexpected policy outcomes”. A rudimentary understanding of graphs and a bit of common sense should do the trick.
Let us look at the supply and demand curve for labour.
What this diagram tells us is that the more that gets paid for labour (or indeed any commodity, from popcorn to motor vehicles or airfares) the less employers (or purchasers of goods and services in an open market) will want and the more will be offered. Conversely the less paid for wages or the lower commodities are priced, the more will be demanded by those wanting to buy and the less will be offered.
Where their two curves meet is known as an “Equilibrium Point”.
Where such conditions prevail, a lot of people get to buy and sell what they want or have to offer. This is recognised as being an efficient market and resource use is optimized. Of course, perfect markets are hard to come by for a number of reasons, nonetheless the pursuit of efficient market conditions is a golden rule for economic progress.
But where politicians, social entrepreneurs and trade unions get involved by pushing up the cost of labour (both financial and other), things get messy – see the following diagram.
Where wages and other costs are increased (artificially, as by laws or trade union pressure) something else happens. Demand for labour falls and unemployment occurs – see the shaded area on the graph.
Now cast your mind back to the last time you saw international economic comparisons where South Africa is stacked up against other nations. You will probably remember that our unemployment rate is one of the highest in the world and our economic growth abysmal by developing economy standards. But that is not all.
We also have too few taxpayers to sustain the growing number of unemployed (see the shaded section in the last graph – which is growing in South Africa). Essentially that means we are going out of business as a nation – which is what happened to the iron curtain nations in late 20th century Europe.
So next time some bureaucrat says he does not pay heed to what economists say, you are entitled to ask yourself this: Is our nation’s labour regime run by the criminally stupid or coerced with purely malicious intent for gain and increased influence by politicians?
Common sense should provide the answer.