South Africas transition from an economic and racial oligarchy to a government

founded on the principles of democracy had numerous implications for all aspects of
policy formulation. The unique socio-political environment created a need for
effective negotiation in order to ensure a successful transition. The result of this need
was a narrowing of the feasible policy directions available to government towards
economic and social imperatives that formed the framework of the policy debate as a
whole (Gelb, 2005: 368). This essay intends to not only outline the adopted policy
direction, but to also give effect to any further analysis of policy by placing it within
the context of both the unique domestic environment and that of a globalizing
economy as whole. The latter is discussed, in particular, with respect to the
consequences of international labour regulations on the ability of policy makers to
address both of the aforementioned imperatives at the same time.
The trade sanctions of the 1970s as well as the financial sanctions of the 1980s
created a vacuum in international demand for domestic goods. This dramatic
reduction in capital inflows made it difficult to finance any current account deficit
subsequently incurred (Gelb, 2005: 368). A general rise in the fiscal deficit and
government debt was therefore an inevitable consequence of this imbalance in trade.
This deficit increased from 1.4 per cent of GDP in 1991 to 10.1 per cent of GDP in
1993 with a proportional increase in government debt over the same period (Gelb,
2005: 370). Given the volatile nature of the South African socio-political environment
and the concern over rising debt, a commitment towards international openness and
conservative fiscal and monetary policy was made. The intention being to assure
domestic investors of the stability of the economy in the years to comes, whilst
providing a platform for the restoration of capital inflows following financial and
trade sanctions (Lewis, 2001: 23). The social imperative of reform was thus a
derivative objective since before any redistributive policy could be financed; a
correction of net capital flow was an unavoidable constraint of the growth model. An
export based development strategy was formed in the hopes of expanding productive
labour intensity with the intention of reducing overall unemployment (Geld, 2005:
368). Since any significant rise in exports would require a liberalization of trade
restrictions it became evident that openness formed a clear foundation for the
direction of policy as a whole.
As already implied, a successful transition would have to account for not only the
economic needs of investors but various social imperatives as well. Redistribution
was driven by public expenditure on initiatives intended to redress previous inequality
by creating sustainable opportunities for a more representative distribution of capital
ownership. This is one of the key factors in the eventual challenges faced by
government in electing a new policy direction.
The issue arises, albeit indirectly, in reconciling the need for the distribution of
capital in an equitable manner with the assurance that the right of decentralized
investors to form their own investment decisions is maintained. Gelb (2005: 369)
identifies this tenuous relationship as an implicit bargain between policy makers
and corporations. It is tenuous because investors who are not convinced of the
likeliness of stability and openness in light of redistribution and reform can exploit the
unenforceable property of an implied bargain by electing not to invest. The result
being that any commitments made by investors can, in theory, be regarded as nothing
more than lip service whilst government incurs the cost of part performance for
what is in essence a hypothetical agreement. The fact that South Africa exhibits
investment rates as low 16% and cash retention rates by firms of over 20%is
indicative of this asymmetry in performance (Lewis, 2001: 17). This uncertainty by
firms is only exacerbated by the lack of formal co-ordination between firms
themselves (Gelb, 2005: 370).
The lack of a commitment from private investors (due to the abstract nature of an
implicit bargain) was compounded by the absence of a feedback system for the
social imperative of capital reform (Gelb, 2005: 370). There was no mechanism
implemented to ensure that the redistribution policies created would result in growth-
oriented synergies. Beneficiaries of the redistribution scheme were not obligated to
reciprocate the transfer of resources with any fixed private investment (Gelb, 2005:
370). The result of this unfettered relationship being a unilateral transfer of resources
from government at the monetary cost of the transfer as well as the economic
opportunity cost of all forgone income from re-investment. The objective of
considerable and sustained growth was thus restricted by the abstract relationship
between the private and public sector. The objective of increased employment, in
contrast, faces obstacles of the same result.

Although openness might be a necessary condition of the proposed growth model it is
certainly not sufficient. Sustained growth requires more than the formal mechanisms
required for international trade, but more importantly they require the practical ability
to compete on an international level (Hepple, 1997: 355). Export-based employment
as an objective is thus premised on the dynamics of the world economy. The most
important of these dynamics - with respect to exports - are production costs and
international competitiveness, both of which pose potential problems for employment
creation within a developing economy (Geld, 2005: 368). In a globalizing world,
labour has become increasingly fungible and is by no means an exception to the
dynamics of the international market place. Production costs and wage rates represent
mutually divergent interests with respect to employers and employees. Multinational
Corporations (MNCs) constitute around two thirds of global trade as a whole (Hepple,
1997: 353) which creates a disparity in power between the developing countries that
are dependent on the foreign investment provided by large MNCs. This imposes a
new dynamic on domestic labour markets and relations as power is skewed away
from employees.
An improvement of the general benefits and conditions of employment means that
international firms are faced with higher exit costs and lower bargaining power. This
leads to higher equilibrium wage rates. A globalizing world makes it easier for MNCs
to simply relocate labour in order to maintain margins. This has serious negative
consequences for job creation. The decentralized nature of MNCs makes it easier for
various aspects of the production process to be disseminated across several
geographic lines (Hepple, 1997: 353). The theory on labour mobility reminds us that
an increase in mobility weakens the inventive for firms and employees to invest in
training and skills development (Ehrenberg, 2012: 351). In a developing country such
as South Africa that exhibits high levels of structural unemployment, the effect of
labour mobility might have serious implications on the differential in skills between
employees and the expanding needs of employers (Lewis, 2001: 23).
Policy makers must then negotiate between the conflicting economic and social
imperatives as framed by the dynamics of international labour relations. On the one
hand the policy direction needs to ensure that domestic labour law is flexible enough
to attract the corporations and investors required by the economic imperative; on the
other hand, however, labour law needs to be stringent enough to ensure that
reformation is achievable as directed by the social imperative.
An inherent friction arises in the attempt to reconcile the need for an open economy
with the internal constraints on employment of redress and competitiveness. It would
appear that economic stability and employment are not always congruent objectives.
This disparity is largely attributable to the effect of international markets on domestic
policy formulation. The rise of irregular, non-unionised forms of employment as a
reaction to the disproportionate power of MNCs on developing economies is of key
concern. Policy makes will need to pay particular attention to the inherent tension that






















Bibliography

Ehrenberg, R.G., & Smith, R.S. 2012. Modern Labor Economics: Theory and Public
Policy. New York: Prentice Hill.

Geld. S. 2005. An overview of the South African economy. The State of the Nation.
1:367-400.
Hepple. B. 1997. New Approaches to International Labour Regulation. Industrial Law
Journal. 26:353-366.
Lewis. S. 2001. Policies to Promote growth and Employment in South Africa. The
World Bank Southern Africa Department. 16:1.