Leon Louw on whether Buthelezi will teach his NBF Malema about economics

The Free Market Foundation is an interesting organization – it’s essentially a small, politically active, think tank/lobbying group amalgam that seeks to bring free market ideas into greater circulation in South Africa, as well as to pursue (when it can) court cases and other forms of activism to promote economic freedom. It’s this latter function that has the FMF appearing before the Constitutional Court to argue that the current law around bargaining councils, which essentially states that agreements reached by bargaining councils must be extended to the whole sector, is collusive, and anti-competitive. They want to see the law changed to say that bargaining council rulings may be extended, subject to the Minister determining whether or not it makes sense, whether a particular wage agreement is appropriate for all the companies in a sector, and what effect it may have on employment. This sounds like a pretty sensible approach, but so far the FMF has faced an uphill battle, opposed all the way by NUMSA, COSATU, and other trade unions. However, to hear the FMF’s Leon Louw tell it, it’s only a matter of time before cool heads prevail. Let’s hope he’s right. – FD

To watch this CNBC Power Lunch video click hereLeon Louw - freemarket foundation 1

GUGULETHU MFUPHI:  Well, as South Africa braces for another year of strikes, slow economic growth, and an increasing unemployment rate among the youth, it is sure to have a huge impact on the South African economy.  We’re now joined at the desk by Leon Louw who is from the Free Market Foundation to discuss all these pressing issues.  Leon, perhaps a perfect starting point from my perspective, would be just an update on how far the case between the Free Market Foundation – as well as Parliament – is, regarding Section 32 of the Labour Legislation.

LEON LOUW:  Yes, it’s currently before the court in what’s called an interlocutory, viz. there is an application by NUMSA, COSATU, and the MEIBC (Metal and Engineering Industries Bargaining Council) to be admitted as respondents in the case.  They are officially; we were happy to let them in, but none of them met three extended deadlines to get their documents filed, so we said that’s enough.  We’re now opposing it and the court has to decide whether to let them file late, to condone late filing of their pleadings.  The Minister we haven’t heard from at all.  We did actually apply for an unopposed role application so that we would get a judgment on the Constitution on the unopposed role – default judgment – but now we have to first hear whether they will be condoned for non-service of their pleadings – their answer affidavits.  That’s what we’re waiting for now…probably a month or two before that hearing.  Then we go on to the main case which, by the way I should say every lawyer who’s looked at it is of the view that it’s as close as you get to an open and shut case on the Constitution.

ALEC HOGG:   Leon, perhaps you can give a little bit of background on what is at stake here, because it is just one word, isn’t it.


ALEC HOGG:   Bargaining councils: you want them to change legislation from ‘must’ to ‘may’.

LEON LOUW:  Yes Alec, it’s actually – in a way – amusing.  It’s strange to say that about something as serious as this is, but the Labour Relations Act says the Minister must extend Bargaining Council agreements to the whole sector.  We are saying that is very bizarre that the Minister may not even think about it, is not allowed to think about it, so for the Minister to oppose this is really the Minister saying ‘I don’t want the right to think about what I do.  I want to be told by private contractors, unions, and employers what to do’.  We’re saying that one word must be changed from ‘must’ to ‘may’, so the Minister may extend meaning, the Minister has to consider the implications for the unemployment, the economy, small business and big business etcetera.  We want the Minister to have the right to think.  That’s really what our proposal is.  It’s as simple as that, actually, changing the word ‘must’ to the word ‘may’.

GUGULETHU MFUPHI:  One would think that this does happens automatically – the thinking part.  Leon, just looking at the impact that this might have on the labour environment in South Africa: should it go your way, given the fact that we’ve seen so much strike action?

LEON LOUW:  Yes, that’s a good question.  It seems very simple to say, and who can argue with saying that the Minister should be allowed to think?  It’s going to be very strange if the Minister appears in court and argues against that, but the implications are far-reaching.  The point is that if you are going to be governed as a union or as an employer by an agreement that you’re not a party to, then you say ‘well, I’d better go to the Bargaining Council and try to participate’.  If on the other hand, you are free to enter your own relationships as unions and employers, then you’re less likely to participate in the Bargaining Council system and the Minister is likely to consider the implications, especially for youth and the unemployed.  It therefore has very far-reaching implications for the whole negotiating system.  It will introduce the sort of thing, strangely enough, people like AMCU, NUMSA, and others want.

NUMSA wants to oppose us, which is very odd.  They should be the first to want the right to operate separately, so we don’t think many of the unions and participants have actually thought this through.  The one thing that, for example, COSATU should want is for the 6/7/8 million unemployed South Africans to have jobs, which will increase its membership enormously – double it perhaps.  We therefore think that the unions ought to be supporting us.  Some unions do, and some unions are likely to come to the case as what is called amicus curiae, to come and argue for the requirement of the Minister to think about what she does rather than just be told what she does.  Let’s understand this.  It’s very odd, you see.  Bargaining Councils are essentially what would be called ‘collusion’ if they weren’t specifically exempted.  In other words, you have employers and employees negotiating…competitors negotiating prices.

That is the worst kind of collusion.  That’s what Bargaining Councils are: they are collusive councils.  They are where collusion occurs.  It’s one to allow collusion, and we think it should be allowed in this case, if not in others – maybe in others, too.  Nonetheless, cooperation is the other word for collusion.  They should be allowed to cooperate.  However, the problem is should collusive deals be imposed on non-colluders?  This is like Pick & Pay and Woolworths entering into a deal on at what price to sell merchandise, and then to make Makro and others bound by their agreement.  It’s one thing to allow collusion, but it’s another thing to allow colluders to enforce their collusive deal on non-colluders.  That is what our Labour Relations Law does.

ALEC HOGG:   Leon, just to move onto a different subject: we had a chat – Gugu and I – last week when we were in Davos.  There was a lot of focus on how machines are taking over the jobs of human beings and that the only way that human beings are going to be better employed or employed at all in the future, is if you have millions and millions of entrepreneurs being encouraged to start little businesses.  A lot of the discussion was around what they’re now calling gazelles – these nimble, fast little start-ups.  Many of them will die, but there will be a lot of them that will actually succeed and go forward.  I just get the feeling that we in South Africa haven’t really got this yet and we might actually be talking to the wrong agenda.

LEON LOUW:  Alec, I’m sorry to say that I’m not sure we should get it.  That was a very bizarre discussion and it can only take place amongst people who are very young and never read history.  It’s the old Luddite nonsense: machinery causes unemployment.  Technology causes unemployment.  Adam Smith dispensed with this conclusively in the introduction to his seminal book ‘The Wealth of Nations’ where he pointed out that if human beings were making pins by pulling wire, moulding them, and soldering on heads etcetera as opposed to machines, the quantity of pins made in the world alone would render the entire world’s population unemployed.  On the contrary, the most technologically advanced countries in the world, like Switzerland, have maintained permanent full employment.  There is no conflict between technology and employment.  On the contrary, all technology means is that employees earn more.

The productivity of people goes up.  I therefore found that to be a very bizarre discussion and I wondered how many of them had ever read any history.  Nonetheless, it is true to say that nimble businesses – and they don’t have to be small…they can be big.  Apple Mac has shown us that, and Blackberry has shown us that big business might not be nimble.  Samsung has shown us that big business can be nimble.  We therefore want nimble, fast, and innovative competitive enterprises whether they are big, small, or private individuals or whether it’s Lizzie Mofolo sitting under a tree on Abel road in Berea selling nuts…she’s nimble.  She goes to another corner, another tree, another place, adds some sweets, and adds some razor blades etcetera.

You can be the smallest micro trader on the street or the largest conglomerate like Samsung, fulfil that requirement, and take advantage as Lizzie Mofolo selling nuts under the tree in Berea does, by using her cellphone to place orders, organise credit, and make payments etcetera.  Technology and jobs are not and never have been in conflict.

GUGULETHU MFUPHI: On that nimbleness, are South African entrepreneurs nimble enough?  How far are we from marrying that technology as well as the employment gap?

LEON LOUW:  I don’t know how one generalises about South African entrepreneurs.  There do seem to be interesting cultural differences.  I don’t know.  Jewish people seem to be more nimble than my tribe of Afrikaners, but I don’t know if there are national characteristics.  I think South African businesses need what all businesses need.  Let’s look at, for example, India.  India had essentially 100 years of stagnation, destitution, and poverty.  Then in 1993, it had what we call reforms.  Overnight, the Indian economy went from being one of the most desperate, destitute, and backward economies on earth to being one of the highest growth economies on earth.  China did the same with its Special Economic Zone, so exactly the same people in the same country…one billion people in India can change at the stroke of the statutory pen from being backward to being prosperous.

It’s the economic system that matters, and in South Africa, we were becoming freer from 1994 to about 1996.  Our growth was going up.  We were creating jobs.  We were attracting foreign investments and strikes were going down.  Then our economy started becoming less free.  It stagnated.  Strikes went up.  Unemployment went up.  Investment went down.  It is as simple as that.  Free the economy as in China, India, Switzerland, Mauritius, Ghana, Mozambique, or Tanzania and you have immediate, very fast high economic growth.  It’s really not rocket science.  It doesn’t need any research.  It doesn’t need fact-finding missions.  It actually needs what I call ‘research by looking’.  Look at the world.  Which countries prosper?

ALEC HOGG:   Leon, we’re running out of time, but I need to get your view on this issue.  You brought a guy out from the United States to have a look at the Economic Freedom Fighters and he said ‘yes, they are fighting Economic Freedom’.


ALEC HOGG:   On the other hand, we have Mangosuthu Buthelezi who has been perhaps one of the more liberal economic thinkers in this country for many years: now the two of them are getting together.  Is the elderly gentleman going to teach the younger whippersnapper something?

LEON LOUW:  Well, I hope so.

I hope they’re teachable.  I’d like to think they are.  I’d like to think they are motivated by good intentions – wanting the country to do well.

You know the old joke, that if you’re under 25 and you’re not a socialist, you don’t have a heart.  If you’re over 25 and you’re not a capitalist, you don’t have a brain.  Hopefully, with maturity comes a realisation that socialism is always and everywhere – calamitous – and what you need is freer markets.  Whether those alliances have anything to do with philosophy, politics, and economics as opposed to simply political self-interest, I don’t know.  You have to be a political scientist to know that.  What I do know, is that if the Economic Freedom Fighters want economic freedom – meaning freedom from control – then they’re barking up the wrong tree at the moment.  At the moment, they are fighting economic freedom; hence, they’re called Economic Freedom Fighters as opposed to fighting for economic freedom – two opposite things – they’re not yet fighting for economic freedom.

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