A comparative study of the trade union movement in South Africa and the United Kingdom with special reference to their economic impact

M.Comm.This chapter has provided the quantitative analysis into the question of trade unions affecting productivity and unit labour costs in a negative manner. We started by making the statement that investing in capital inputs usually requires the company concerned to borrow funds from a bank, against the current lending rate. Should this lending rate increase, we would expect the amount of fixed capital invested to fall and vice versa. The pattern of interest rates and gross fixed capital formation followed this orthodox theory but that of South Africa has not: where interest rates have been rising, so too has the level of fixed investment. One may therefore conclude that industries in South Africa value capital inputs highly and are prepared to pay a higher price in order to have more capital inputs in their production process. We then went on to analyse the South African motor vehicle industry and came to the conclusion that the factor inputs of capital and labour were not optimally allocated and that the industry operated at a less than efficient point. In fact, labour was being over-utilised and capital was being under-utilised. We also noted that labour productivity over the past decade had been declining: labour was more productive in 1984 than in 1993. The only way for the South African motor vehicle industry to become more internationally competitive is for it to operate more efficiently and contain costs. One of the ways in which it could do this would be to move closer to the level of optimum factor input; this will mean that both capital and labour inputs will be better allocated. More capital needs to be utilised and several thousand workers needs to be retrenched; Kleynhans estimates 24 000 to 36 000 workers (1994: 143). It is most likely to be the actions of labour unions that have caused vast numbers of unproductive workers to be employed at high wages. Any past attempt to reduce the size of the workforce has naturally met with strong criticism from the unions and this has led to strike action and work stoppages. Unfortunately, the harsh reality is that labour needs to be replaced by capital if the industry is to survive internationally. It was noted in a table comparing the average remuneration of workers in the motor vehicle industry of different countries that the seven other countries discussed all showed higher rates of remuneration than in South Africa. Since these countries all have highly competitive motor vehicle manufacturing industries, one must be led to the conclusion that the higher wages are only paid because of a high rate of labour productivity within that sector. This again sustains the argument that higher wages are not detrimental to an industrial sector, provided productivity is relatively higher than the wage increases. The next industry to be considered was the South African clothing industry. Again the analysis proved that factor inputs were not optimally allocated. It appeared that capital was over-utilised and labour was under-utilised but after testing the significance of the result, Clark (1996: 72) said that this was not necessarily true. The marginal productivity of capital indicated that capital inputs used in the production process are unproductive: this was confirmed by the fact that the marginal product of capital was negative. However, referring to table 5.3 which gave the production, capital and labour data for the industry, usage of the factor input capital seems to have remained constant. One would therefore conclude that as output has been increasing, the contribution of the factor input capital has been decreasing. Clark (1996 : 91) outlines two possible reasons for this phenomenon: firstly, depreciating exchange rates have meant that capital inputs have become more expensive and could have forced the industry to "make do" with less capital inputs and secondly, the imposition of economic sanctions meant that it was difficult to purchase and import such capital goods. A process of sub-contracting out to small and medium concerns then occurred, some of whom could not afford to service or replace existing machinery and so turn to more labour-intensive methods of clothing production. Labour inputs in the production process did make a positive contribution: this was confirmed by labour having a positive output elasticity coefficient but the actual productivity of each individual worker has fallen. In other words the reason for the positive contribution was the addition of extra labour units to production and not by each worker contributing more to the production process. The final industry that was analysed was the mining and quarrying industry. The data illustrates that the real output level is falling, as is the number of persons employed in the sector. The unit labour costs have risen enormously which suggests that fewer workers are being paid more to produce less output. Added to this is the fact that more capital inputs are being used that ten years ago and the capital to labour ratio index has been steadily increasing further suggests that some units of labour input are being replaced by units of extra capital input. Using the data in table 5.8 of the annual average growth rates, the average growth rate of the labour productivity index shows a negative pattern: in other words, labour is becoming less and less productive and consequently workers are being retrenched and more capital is being employed, even though the cost of utilising more capital in the industry is increasing the whole time