Opinionista Dick Forslund 23 August 2021

Law and austerity: Constitutional Court hears unions’ appeal on public sector wage agreement

The Alternative Information and Development Centre fears that if the Labour Appeal Court judgment is left as it is, it will be open for the courts to take sides in the economic policy debate on any issue. We also believe that fiscal policy issues are crucially not about affordability in general, as the pundits always have it, but about contentious choices between what to afford and which groups and classes in society should be able to afford what.

Dick Forslund

Dick Forslund is senior economist at the Alternative Information and Development Centre, which produces the activist magazine Amandla.

On Monday, the Constitutional Court considered an appeal over whether the government can renege on the three-year wage agreement it signed with public sector unions in 2018. In a judgment handed down in December 2020, the Labour Appeal Court (LAC) held that the government could.

The Alternative Information and Development Centre (AIDC) had applied to be a Friend of the Court in the unions’ appeal against this decision. However, this was dismissed by the Constitutional Court in a very short decision. 

The reason AIDC applied to be a Friend of the Court is that the Labour Appeal Court’s decision favoured one kind of economic policy. AIDC’s submission labelled the harsh austerity policy of the Treasury, the government and the LAC’s decision as ideologically based in “neoliberalism”.

In its judgment, the LAC said that a wage increase for public sector workers “might imperil the provision of social grants” as well as the need “to pay for significant and critical medical costs caused by the pandemic”. In this way, it pitted the poor against public sector wages and agreed with the Treasury on this particular point. 

It also justified reneging on the wage agreement as being in the interest of “economic recovery”, saying it was not “just and equitable under the present circumstances”. 

This is, of course, highly disputed. 

In the short run, this is because of what a “wage freeze” for more than one million employees does to suppress economic demand when their buying power falls at the rate of inflation. Second, it is because of what the shock does to the morale of public servants tasked with the provision of public services like healthcare and basic education.

AIDC fears that if the LAC judgment is left as it is, it will be open for the South African courts to take sides in the economic policy debate on any issue. We also believe that fiscal policy issues are crucially not about “affordability” in general, as the pundits always have it, but about contentious choices between what to afford and which groups and classes in society should be able to afford what; as well as what their reactions will be to measures and how to view and handle those reactions. 

Indeed, the former finance minister’s concern for the poor in the court papers should be seen in light of choices made in the 2021 Budget. Its three-year plan effectively means a cut of all social grants by more than 2%, nominally and on the average. The child care grant is to be reduced by over 3%, nominally. At the present (official) inflation rate of above 4% per annum, the average buying power of the social grants will be hollowed out by more than 15%. The Treasury forecasts that the value of R100 three years from now will be worth less than R85 in the shop. And then there is, of course, the problem of food inflation during the pandemic. 

The Treasury and the parliamentary majority obviously thought that 18 million grant receivers and their children could afford a cut in consumption. The government then discontinued the R350 Covid relief grant in April, only reinstating it in August after the unrest in July and the storm of interventions by civil society calling for a basic income grant. 

What a mess.

In the 2021 Budget Review, the Treasury also infamously spelt out one consequence of its policy choices: The moratorium on the filling of vacant posts, together with teachers leaving for the private sector because of the cut in their real wages and the increasingly unbearable work situation in classrooms, will hit hundreds of thousands of our children and their future.

“Low compensation growth of 0.8 per cent over the MTEF period, combined with early retirements, will reduce the number of available teachers. This, coupled with a rising number of learners, implies larger class sizes, especially in no-fee schools, which is expected to negatively affect learning outcomes.”

In July, the Eastern Cape Department of Education gazetted that it will close 1,142 schools in the province. Let the politicians explain why this will not lead to a disaster and how it helps “economic recovery”.

There is no alternative to austerity?

Why is this happening to us? 

Well, it is because of the belief that There Is No Alternative. The phrase was abbreviated to “TINA” when the debate started with the neoliberal political movement in the 1980s. 

So how does ideology come into play in economic policy choices? 

Maybe it is best illustrated by the concept of “ideological closure” used by the Marxist author Fredric Jameson in his book The Political Unconscious. The Swedish economist and Nobel laureate Gunnar Myrdal instead spoke of “The Will Not to Know” when describing the mindsets of upper-class students in economics, 20 years before the so-called welfare states came into being in Scandinavia.

A salient example of this can be found in the “printing money” debate during the first lockdown; a shock that closed tens of thousands of businesses and retrenched a million-and-counting workers. 

Instead of relying on section 13f in the SA Reserve Bank Act — which allows our central bank to lend money directly to the Treasury within defined limits — the government thought it could assist businesses under threat by up to R200-billion via the private profit-maximising bank sector. This project has failed dismally. In an official Q/A release on 28 March 2020, the SARB however argued that it would be “not permissible” to buy Treasury bonds directly (at any agreed interest rate or repayment terms) to avoid a crash. 

The truth is that the latest balance sheet of the SARB allows for some R300-billion in direct lending to the Treasury while complying with the SARB Act. 

The only result of the public clash over this matter is that one cannot find the Q/A document on the SARB website, but the proof of this particular ideological closure of policymakers at SARB, or their “Will Not to Know” what the legislation they are under says, is of course still there on the web.

On 22 August, the Sunday Times’ Hilary Joffe asked in an editorial (Treasury needs to be open about costs and benefits of its borrowing) why the Treasury is borrowing more than it seems to need and, at seemingly unnecessarily high interest rates, selling long term Treasury bonds. 

Joffe asked for an open conversation about this policy choice. 

Maybe revenue collection has been too good lately. Debt service that leads to “painful choices” is as important for neoliberal policymaking as the idea that the interests of big finance equals the public interest. Self-inflicted debt and debt service have played a major role in OECD countries to motivate austerity policies and privatisation of public service, especially since the choice to bail out the banks during the financial crash in 2007-2008. 

In South Africa, there was no bailout, thanks to bank regulations. We have instead a situation where the Treasury is paying market rates on bonds held by the Government Employee Pension Fund (GEPF), which holds 14%-15% of the debt of the government and Eskom. The GEPF runs with a surplus of more than R50-billion a year after paying all pensions and benefits. Thirteen percent of the “public sector wage bill” comprises contributions to GEPF. There is No Alternative (TINA)? 

We hope to come back to that subject soon, and especially to the newly signed 2021 public sector wage agreement and its relation to a major “structural reform” motivated by state debt. Just to say for now, that the three-year budget plan means a cut of 815 posts over three years in “Justice and Constitutional Development” and 754 posts in Court Services. Is there really no alternative? 

Unfortunately, in their appeal of LAC’s judgment, the unions have chosen not to put the economic policymaking to the test. What is before the Constitutional Court is the status of the Labour Relations Act and the circumstances that should have prohibited the state from running away from a signed agreement after following it for two years, potentially sending the collective bargaining system into crisis. 

We hope this is enough. DM/MC

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    • You’re just changing the subject, Charles. You raise an issue of legitimate concern (productivity of public sector workers – which covers a very wide range), but you utterly miss /choose to ignore the social consequences of austerity and the deterministic excuses offered for our fiscal policies; compounded by the fact that the SARB tries to hide it’s capacity and available options behind misrepresentation or ignorance of its mandate.

  • Excellent piece for providing a big-picture perspective with relevant detail and data, both on the austerity measures being pursued and on the myopia of what currently passes for economic ‘common sense’ – or the ‘fiscally responsible’ policies that result in somewhere between a quarter and a third of all the children in our country suffering stunting from malnourishment….

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