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IMF boss backs less protection, more jobs in SA

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(iStock)
(iStock)

The second-in-command at the International Monetary Fund (IMF) has given a ringing endorsement to several long-standing proposals to reduce worker protections in South Africa.

The fund’s deputy managing director, David Lipton, gave a lecture at Wits Business School last week, where he slated the collective bargaining system and the new rights accorded last year to labour broker employees.

He advocated for the planned national minimum wage to be staggered with a “subminimum for youth and small enterprises”, and suggested that South Africa create a “single employment contract” that would eliminate the distinction between fixed-term and open-ended jobs.

New workers should only gradually receive full benefits over time, he said.

Lipton is the IMF’s second most senior official after managing director Christine Lagarde. His visit follows the publication of the fund’s 2016 staff report on South Africa earlier this month.

In his speech, he also criticised the anticompetitive grip that small groups of large companies have over the economy.

“The private sector has been supported in a way that creates privileged markets, working against the interests of consumers. They also damage competitiveness by keeping business costs high,” he said.

“In the finance sector, there are only a few retail banks in operation, and their fees are high.

“Many South African companies enjoy very high profit margins. These are often 50% higher than the profit rates in other countries,” said Lipton.

“These margins are often built on barriers that hurt consumers and block potential competitors,” he added, citing tariffs against chicken imports.

“I think big business needs to ... be more amenable to working in a more competitive environment.”

Policies which meet the IMF’s approval include the controversial Employment Tax Incentive Act – which has cost several billion rands since its implementation in January 2014, and for which Treasury is due to release an evaluation this year– as well as the Competition Commission’s series of proactive market inquiries into the private healthcare, banking, liquid petroleum gas and retail sectors.

The inquiries “show promise in facilitating market entry for smaller businesses”, Lipton said.

The competition authorities should be given more resources to fight cartel behaviour and excessive market power, he added.

Lipton singled out the high port tariffs charged by Transnet and the sometimes-violent cartels in the bus and taxi industries as hindrances to a better-functioning economy.

“Anticompetitive behaviour is common in other industries, including construction, maize, wheat milling and telecommunications.”

While the recent lack of economic growth had to do with various external factors, including China’s falling demand for minerals and the severe drought, Lipton said this was “really only part of the story”.

“There is a crucial structural issue at play here. Those included and successful in the advanced economy – large businesses, banks, unionised workers – operate with entry barriers against their potential competitors.”

Lipton dismissed criticism from the audience that everything he was saying simply repeats what the IMF has said for the past
20 years.

“I think the role of jobs for the excluded is a new focus,” he said.

He called his proposals an “inclusion agenda” which contrasts policies preoccupied with aggregate demand through redistribution and higher earnings for workers.

“Keynesian policies do not hold solutions to South Africa’s problems,” said Lipton.

“I do not believe that redistribution of wealth alone will solve your problems ... We are talking about a third of your population [that is unemployed].”

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