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Seminar Paper

Words: 2615, Paragraphs: 44, Pages: 9

Paper type: Essay , Subject: Economics

“Giants feeding ants”.

The effects of minimum wage legislation on agribusiness in South Africa.

Mr SGS Mzana.

201706547

The University of Fort Hare

Faculty of Science and Agriculture

Department of Agricultural Economics and Extension

AGE 322 Introductory Seminar

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2019

Supervised by Mrs J Manyike.

Contents

TOC o “1-3” h z u Chapter 1. PAGEREF _Toc15657593 h 3Introduction. PAGEREF _Toc15657594 h 3Background. PAGEREF _Toc15657595 h 3Problem Statement. PAGEREF _Toc15657596 h 4Objectives PAGEREF _Toc15657597 h 5Core objectives. PAGEREF _Toc15657598 h 5Sub-objectives. PAGEREF _Toc15657599 h 5Method. PAGEREF _Toc15657600 h 5Chapter 2. PAGEREF _Toc15657601 h 6Literature Review. PAGEREF _Toc15657602 h 6Introduction. PAGEREF _Toc15657603 h 6Minimum Wage PAGEREF _Toc15657604 h 6Definition and purpose. PAGEREF _Toc15657605 h 6A brief history. PAGEREF _Toc15657606 h 6References. PAGEREF _Toc15657607 h 8Media PAGEREF _Toc15657608 h 11

Chapter 1.Introduction.Background.Writing in the French journal Les Guepes, in the winter of 1849, journalist Jean-Baptiste Alphonse Karr observed,” the more things change, the more they stay the same”. Nowhere has that sentiment been truer than with South Africa. Within thirty years the country has been through a raft of major changes, where for example, the political sphere has seen a centuries-old White minority government being replaced by a more democratically elected and Black dominated one. With the abolishment of restrictive apartheid laws, the country has seen changes in the economic front, with more Black people being more active participants in the economy than just being consumers. As one of the political parties in the country once stated, overall the country has a good story to tell.

Despite this though, poverty and unemployment remain very high in the country. The class and wealth gap increases yearly, with the country having one of the highest Gini coefficients in the worldCITATION Wor19 l 7177 (WorldBank, 2019). Nowhere is this inequality more exhibited than in its agricultural sector, where through the previous apartheid government’s policies like the 1913 Natives Land ActCITATION Gov18 l 7177 (Gazette, 2018), White farmers obtained vast tracts of prime agricultural land and resources while displacing the native population to the periphery of society and restricting them to so-called “homelands”. This resulted in extreme overcrowding and created an easily exploitable labour source for White farmers and the recently established mines, which persists to this dayCITATION Lee13 l 7177 (Modise & Mtshiselwa, 2013).

As far as agriculture and South Africa is concerned one must also take into cognisance the global conditions that existed around the early 20th century, especially the First World War in Europe between 1914 and 1918, and the Great Depression of the stock markets which started in 1929 and was regarded to have ended in 1939, respectively. The former was responsible for a boom in the supply of agricultural produce to the war front which combined with the huge numbers of unemployed Black former farmers because of the mass evictions following the Native Land Act, created opportunities for employers to exploit workers due to the resulting oversupply of available labourCITATION The14 l 7177 (sahistory.org, 2014). The latter on the other hand devastated market economies the world over which amongst other things resulted in farmers not being able to sell their produce for good enough prices because consumers could not afford them in the first place CITATION Min90 l 7177 (Minnaar, 1990). Exacerbating matters were the natural disasters that plagued the country at the time like drought and pest outbreaks CITATION Min90 l 7177 (Minnaar, 1990), and one gets more extreme poverty created and a situation where predatory behavior can be openly practiced.

This is clearly demonstrated by the fact that for decades, the dop or tot system was regarded as an acceptable manner of remunerating workersCITATION Jim98 l 7177 (Naude, et al., 1998). This was a system where people would be given a daily measure of cheap wine in addition to their meagre monetary wages. It has had particularly devastating social implications especially for Cape Coloured farmworkers in the Winelands region because it has led to rampant alcoholism CITATION Jim98 l 7177 (Naude, et al., 1998) and extremely high incidences of Fetal Alcohol Syndrome in those communities CITATION Wil14 l 7177 (Stassen, 2014). Although outlawed in 1960 the practice continued until enforced by the new democratic government especially with 2003’s Liquor ActCITATION Gov04 l 7177 (Gazette, 2004). Mass media is also full of images of the living and working conditions of workers under the old apartheid regime, especially Peter Magubane’s infamous degrading photographs of naked mineworkers being inspected after work to check whether they had stolen any gold ore CITATION Pet19 l 7177 (Magubane, 2019) . The international film production, ”Diamonds Are Forever” had a scene depicting this, where a workers are being shown stealing raw diamonds and then getting them taken out by a corrupt dentist. Even today one can simply visit many a modern farm and they can see the squalid hovels workers live in or the informal settlements that often spring up around these farms because there is also still the issue of workers being summarily evicted from farms they’ve been born in or resided almost all their lives, such that the Extension of Security of Tenure Act of 1997CITATION Par97 l 7177 (Gazette, 1997), later amended in 2004, was enacted to prevent that.

Despite the more positive economic outlook following the election of Cyril Ramaphosa as the new president of the Republic, a “Ramaphoria” as it has been dubbed in news media, South Africa’s economic environment has been quite challenging for several years. Growth has been less than expected owing to amongst several things, the changing global economic environment. On the African continent this has seen the country being overtaken by other countries like Nigeria, in terms of economic growth. There have been investment ratings downgrades from international investment houses like Moodys CITATION SAc19 l 7177 (Investec, 2019) and Fitch CITATION Col19 l 7177 (Smith, 2019). There has been trouble with dependable electricity supply such that nationwide, rolling blackouts have been sporadically implemented by the state owned power company Eskom, since 2008 costing the country the country billions of Rands in lost productivity, while at the same time, operational issues have seen the entity requesting billion rand loans from the National Treasury on an almost monthly basis CITATION Col19 l 7177 (Smith, 2019).

Complicating matters even further for the country, its currency the rand, has greatly lost value when compared to its counterparts. Mines have been shut down mostly due to amongst other things; the resulting lower prices being received for commodities like gold and platinum, which for decades were linked with the country’s fortunes, and the previously mentioned undependable electricity supply, leading to retrenchments and unemployment. This downturn in the economy has also led to a reduction in activity in the construction sector which has seen also seen major companies like Group Five, Basil Read and Esor also shutting down, further increasing unemployment and poverty again.

That having been said, poverty is a multi-faceted and multi-dimensional challenge whose causes cannot be solely blamed on any one singular factor. As such, various measures have been introduced by the authorities in order to alleviate this societal problem. One of them was the introduction of minimum wage declarations in some of the various industries that make up the South African economy. This process began in 1999 with the domestic worker and security guard sector whilst for workers in the agricultural space there have been three minimum wage declarations, initially in March 2003, followed by another in March 2010 and finally culminating in the national minimum wage which came into effect in January 2019.

Problem Statement.The objectives of minimum wage legislation are to amongst other things to protect workers from exploitatively low wages, to advance economic development and reduce poverty and inequality especially with regards to gender parity in other words “equal pay for equal work”. The aims of the legislation were to help workers become more financially independent and secure. This was for example, to counter the practice of employers making decisions on behalf of their workers that could be open to exploitation, like buying groceries on their behalf and in lieu of their wages. This literature review seeks to determine how effective the various determinations have been in addressing those objectives. In addition to that, since the initial implementation of the different sectoral wage determinations and culminating with the nationally determined minimum wage there have been several studies and literature, most notably by Bhorat et al, from 2000,2012 and 2013. An identified problem has been that this literature is a few years old and there have been no recent studies identified by this reviewer regarding the effect of minimum wage on agribusiness especially accounting for the challenging, recently past and current socioeconomic climate in South Africa. This review seeks to attempt to fill that information void by presenting updated research.

ObjectivesCore objectives.This paper seeks to determine what effect minimum wage legislation has had on the commercial agricultural sector, taking into cognizance the arguments for and against it.

Sub-objectives.To determine whether minimum wage has been effective in meeting its core objectives.

To recommend alternative models to replace it and/or methods to supplement it.

Method.With the objectives of minimum wage set out, this literature review seeks to give a brief history of minimum wage in South Africa and in the agricultural space. Arguments will be produced from both proponents and opponents of minimum wage. Data will be collated which will seek to confirm both sides of the argument, which shall then be looked at objectively and a final determination made on the efficacy of the policy. The data used will include historical economic data for the time periods mentioned such as inflation data, wage data, employment figures, immigration data and other useful indicators.

Chapter 2.Literature Review.Introduction.In this chapter the subject of the topic, minimum wage will be introduced, defined, a brief background given and the current state of the policy addressed as it pertains to South Africa. The object of the topic, agribusiness will then be introduced, a brief history given and the current state of such discussed and the two concepts will then be connected along with the data available and connections established and determined.

Minimum Wage

Definition and purpose.Minimum wage is defined by the International Labour Organisation (ILO) CITATION ILO19 l 7177 (ILO, 2019) as the lowest amount of wages that an employer is required to pay employees for the work performed during a given period, this wage which is in effect a wage floor that cannot be reduced either by collective agreement or an individual contract.

A brief history.Worldwide it started in the Antipodean territories in the mid-1890s, with New Zealand establishing a minimum wage in 1894, the Australian state of Victoria following soon after in 1896 while the United Kingdom only followed suit in 1909. In the United States of America, the fight for minimum wage legislation was closely linked to the fight for women’s suffrage because it was women and children who were the most vulnerable due to the existence of sweatshopsCITATION Wha19 l 7177 (ILO, 2019). As pointed out by Elna Green, “Suffrage rhetoric claimed that enfranchised women would outlaw child labour, pass minimum-wage and maximum-hours laws for women workers, and establish health and safety standards for factory workers”. The threat of these reforms galvanised Big Business interests like plantation and textile mill owners, railroad magnates, party machine bosses, and the liquor interest in a formidable combine against suffrage CITATION Gre97 l 7177 (Green, 1997). This frustrated the reformists so much that although the right for women to vote was granted nationally in 1920, the federal government only ratified legislation mandating a national minimum wage in 1938 CITATION USD19 l 7177 (Labor, 2019).

In South Africa, the idea of a national minimum wage (NMW) was first mentioned at the 1955 gathering of the Congress of the People in Kliptown, whereupon the Freedom Charter was adopted and endorsed CITATION UKZ19 l 7177 (UKZN, 2019). The idea was then mentioned by COSATU at its inaugural conference in 1985, where their call for a legally enforced national living wage was further endorsed by the Conference for a Democratic Future in December of 1989 CITATION Coo91 l 7177 (Cooper, 1991). A living wage committee (LWC), set up by COSATU in 1990 determined that the minimum wage be set at R700 per month and it made the call that the union negotiate with any incoming democratic government to institute a NMW. At the same time individual unions and their members were encouraged to continue negotiations with employers towards the same goal CITATION Coo91 l 7177 (Cooper, 1991). As Cooper also reported in 1991, the LWC advanced that the NMW be controlled by the state citing three reasons, namely: how workers in certain sectors are vulnerable to exploitation and needed protection, by setting floors on lower wages the battle against poverty and inequality could be better fought, lastly lower wages have an adverse effect on the growth and productivity of a country’s economy. The issue was left on the backburner as the labour unions decided to focus more on the struggle for restructuring the economy especially in light of the changing political situation in the country CITATION Coo91 l 7177 (Cooper, 1991).

As per Bhorat and Mayet CITATION Har13 l 7177 (Bhorat & Mayet, 2013) an Employment Conditions Commission (ECC), a representative body within the Department of Labour (DoL) was established in 1999 to advise then Minister of Labour, Membathisi Mdadlana on appropriate and feasible minimum wages for different sectors or sub-sectors in the economy (on so-called ‘sectoral determinations’). At the moment there are 11 sectoral determinations, of which the most important are the Farmworker, Wholesale and Retail, Domestic Workers, Forestry, Taxi, Private Security, Civil Engineering, Contract Cleaning,  Hospitality, and Performing Arts sectors.

References. BIBLIOGRAPHY Bhorat, H. & Mayet, N., 2013. The impact of sectoral minimum wage laws in South Africa. [Online] Available at: 02 August 2019].

Brittanica, 2019. Political machine. [Online] Available at: 2 August 2019].

Cooper, C., 1991. The national minimum wage debate. South African Labour Bulletin , 15(8), pp. 48-50.

Gazette, G., 1997. Extension of Securty of Tenure Act. [Online] Available at: 30 July 2019].

Gazette, G., 2004. 2003 Liquor Act. [Online] Available at: 30 July 2019].

Gazette, G., 2018. The Natives’ Land Act no. 27 of 1913. [Online] Available at: 31 July 2019].

Green, E. C., 1997. Southern Strategies: Southern Women and the Woman Suffrage Question. In: s.l.:Chapel Hill: University of North Carolina Press, p. 52.

ILO, 2019. How to define a minimum wage?. [Online] Available at: 31 jULY 2019].

ILO, 2019. What is a minimum wage -a short history. [Online] Available at: 31 July 2019].

Investec, 2019. SA credit rating unchanged, no update from Moody’s. [Online] Available at: 30 July 2019].

Labor, U. D. o., 2019. History of Federal Minimum Wage Rates Under the Fair Labor Standards Act, 1938 – 2009. [Online] Available at: 31 July 2019].

Magubane, P., 2019. Mine Inspection. [Art] (Drum Magazine).

Minnaar, A., 1990. The effects of the Great Depression (1929–1934) on South African White agriculture. South AFrican Journal of Economic History, 5(2), pp. 83-108.

Modise, L. & Mtshiselwa, N., 2013. The Natives Land Act of 1913 engineered the poverty of Black South Africans: a historico-ecclesiastical perspective. Studia Hist. Ecc., 39(2), pp. 359-378.

Naude, J. t. W., London, L., Pitt, B. & Mahomed, C., 1998. The ‘dop’ system around Stellenbosch – results of a farm survey. South African Medical Journal, 88(9), pp. 1102-1106.

sahistory.org, 2014. The impact of the War on Agriculture and Land. [Online] Available at: 30 July 2019].

Smith, C., 2019. Financial Times. [Online] Available at: 30 July 2019].

Stassen, W., 2014. New generation falls victim to “dop” system. [Online] Available at: 30 July 30].

UKZN, 2019. The Freedom Charter, 1955. [Online] Available at: 31 July 2019].

WorldBank, 2019. The World Bank’s strategy in South Africa reflects the country’s development priorities and its unique leadership position at sub-regional and continental levels.. [Online] Available at: 30 July 2019].

Media

Figure 1. Workers on inspection at a mine. Copyright to Dr Peter Magubane for Drum magazine.

Figure 2 Sectoral employment figures.

About the author

This sample is done by Scarlett with a major in Economics at Northwestern University. All the content of this paper reflects her knowledge and her perspective on Seminar and should not be considered as the only possible point of view or way of presenting the arguments.

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