This week we have something a little different for you – the opportunity to listen in on a vigorous, off-the-cuff, and unscripted debate between Alec Hogg and I over the GG Alcock article on the informal economy. It’s a long argument, but an interesting one, as Alec and I debate the role that the informal economy can play in a developing South Africa and address bigger questions about the changing world of work and the future of the economy. – Felicity Duncan
Hello and welcome to this week’s episode of The Editor’s Desk here on Biznews Radio with me, Felicity Duncan, and with Biznews editor in chief Alec Hogg.
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This week we have something a little different for you. We captured an off-the-record conversation between Alec Hogg and myself on the topic of the GG Alcock article that appeared on Biznews this week, which dealt with the subject of informal employment in South Africa and the informal economy. The piece generated a lot of controversy on the site and a lot of feedback – both positive and negative. As you’ll hear, it also generated quite a heated discussion between myself and Alec. So take a listen to this unscripted and off-the-cuff discussion of the topic.
[GG Alcock is] a fascinating person and he has got unique insights. And it actually all makes sense what he says. We’re not monitoring a side of the economy that is, of course, there’s a huge informal economy and everywhere you go in South Africa you see it, but we are still thinking in the old-fashioned way. I think that was quite groundbreaking actually, the work that he’s doing.
I thought when I first read it I had some thoughts on that. I mean, first of all, he doesn’t really… he uses anecdote for evidence, which is fine but we don’t really know. There’s a reason we don’t generally use anecdote for evidence, because you just don’t know.
But I think the bigger objection – and I think that the guy from the DA made this point…
Toby.
Toby yes. Which was the first thought that I had when I read the whole thing – that the problem is that there’s no way to deploy capital. So there’s no way to scale up.
You know he talked about that lady who sells vetkoek. She can never scale up. If she’s doing so well that’s amazing. And she should set up a business properly, you know, she could scale that up. Why not sell – she sells 5,000, I think he said – why not sell 50,000?
Oh well, she can’t ever do that because she can never access capital because of the nature of how the business is set up.
I think he’s definitely right – people are getting by and making a living in this way. But without the linkages to the formal economy, it’s always going to be so marginal for people. You know, it’s never going to be transformative.
To me there’s a bigger question and that’s more a reversion to normality where people work for themselves rather than this industrial age psychology that you’ve got to get bigger and bigger and bigger, and employ more and more people.
I don’t think people want to be employed. Of course, people want to be employed. They want to be nurtured and looked after and fed and everything else, but only because that’s the way they’ve been taught is normal.
A much better way of doing things is where people work for themselves but don’t necessarily become gazillionaires, but they make a living. And that’s really – it’s almost like reverting to the normality which occurred before capital was king. Capital is no longer king. There’s too much capital at the moment and we are now reverting back to the old days where, you know, in America in 1790, 99% of people were self-employed. And that’s the same as the gig economy, the informal sector.
I don’t know. I’ve got a very different view on these things and that’s why I’m quite excited about what GG is discovering. Because you don’t necessarily need the old model of “I must start a business and employ a hundred thousand people.” I don’t think that works anymore.
Employees are not… there is that that friction between employer and employees, where the employer thinks he’s overpaying and the employee thinks they’re being underpaid and that friction always leads to acrimony in some or resentment in some area.
Whereas if I have now got a freedom of choice to work for somebody and if they can only pay me X, they are happy with what they are paying me. I’m happy to work for those few hours or whatever it is for that amount. If I don’t like what I’m being paid, well, I’ll go and do something else, or nothing. So, you know that’s my take on the whole thing. It’s a bit different.
But don’t you think though that there are… I think that can work in some ways but there’s two issues with that. The first is that things have to be funded and I’m talking basic infrastructure right – roads, electricity, all of that has to be funded somehow. And really the only way to fund that is through the state. People working alone and for themselves are not going to build a bridge. They have to work collaboratively together and there’s a big upfront cost of capital to do that.
So, government does need to collect revenue in order for this to work. And I agree, I think that there needs to be more of an entrepreneurial attitude among South Africans. I think that’s definitely true. But they have to be able to do it against the backdrop of some kind of infrastructure. Something even like hospitals right – hospitals are not really something that can be run by a bunch of independent people working for themselves because you have to have a set of rules and you have to have quality. And the second…
I don’t disagree with you at all on that. But maybe the focus is how do you get these people in the informal sector to pay some contribution to that.
Ja, absolutely. I think the solution can’t be an expansion of the informal sector. You’re going to have the lady selling vetkoek – that is definitely doing something important for herself, for her family. But ultimately, she’s using the infrastructure of South Africa, the roads and all of the rest of it, without necessarily paying a full share towards maintenance and upkeep, you know. And we know that one of the big problems is South Africa just has far too few taxpayers to shoulder the burden of its costs.
But hang on she when she buys petrol, she pays tax when she buys cigarettes, she pays tax when she buys anything, she pays VAT.
But if VAT is going to be enough, if we’re going to say OK, which we can do, we can say no more income taxes, no more business taxes, everything is going to be VAT, because it’s harder to get away from VAT. We can certainly do that, but VAT would need to probably be 50% to do that.
VAT is already more than income tax. VAT generates more than income tax.
Yes totally. But I’m saying if you want to make it entirely VAT, VAT is going to have to go up, and you’re then going to police it. Because I seriously doubt that she is charging VAT on her vetkoek and remitting it to the fiscus. So, VAT, again, is also only a solution if you’re doing it in the context of a formal economy.
But when she buys her products for the vetkoek, she’s paying VAT.
Ja, but we know for sure that the South African government is not bringing in enough money to meet its outgoings. That’s why we’re borrowing. That’s why the government’s debt-to-GDP is edging up to 60% or so.
That’s the budget deficit.
Yes, the budget deficit is increasing the debt-to-GDP ratio.
I think it’s complex but I think, overall, philosophically, my sense is that the formal sector – more and more evidence is showing us that the old way of work, the old formal employment way, is just not working anymore. And you look at the growth of shared office spaces etc.
So, it’s never absolute, but it’s moving in that way. And I don’t think that in a country where you have such high unemployment in the formal sector and a formal sector that in many ways is very poorly managed… I mean, you’d be horrified if you go to spend a day listening to the way managers manage in many of the formal companies here. You’d be horrified, because there still is a whole lot of history and background and then they blame the workers. The usual reason for a strike is conditions aren’t great.
I mean, this guy that I saw in Durban, who employs 900 people, he doesn’t have a trade union. He chases unions away, because he pays more than the normal wage and he engages with people directly. And, you know, everybody’s happy. They are pulling in the same direction. But it’s when you start formalising these things and bringing in human resources, it gets complicated. But I suppose it’s, you know, it’s just a different philosophy that I have.
I think that can work in some industries and in some ways. But for say, you mentioned shared office space, which is I think an interesting aspect of what’s happening. But you know the fundamental problem there is that someone has to build the office, which is a multi-million-rand enterprise that requires a lot of coordinated labour.
So, you know, I think that there’s growth in this space of self-employment and in the space of independents and contractors and things like that. But I also think that there’s a lot of stuff that gets made in the economy, like cars for example, that you can’t really do in a small-scale way, because it requires a lot of aggregation of capital and skills.
No, I’m not saying you do it in a small -scale way. I’m just saying that the way that you remunerate those who participate in it, is different. You don’t own them. You don’t make salary slaves. You give them the option of becoming associates, working during the times that suits them, like we do. It’s exactly like we do business. The gig economy, I think, can get much bigger. You know it’s just, more than 85% of employees are disengaged – something’s wrong with the system.
In talking about expansion of gig work and all the rest of it, it’s hard to picture people building lives and families around gig work.
I know a lot of people who do, when they’re students and things like that, maybe they deliver for UberEats or whatever the case may be, but you don’t really make enough money to live doing it. It’s more a sort of supplemental income.
You know, I think it’s a difficult problem. Because the economy, historically, if we take, for example, America – America historically has done the best when its middle class was growing fast. So when the wages of the majority of people were growing quickly, so that they could afford to purchase more goods and services.
And periods where inequality was rising, growth tends to slow. We’ve seen that happening in the last 10 years or so.
And so we have to think about ways to strike this balance between flexibility and people, as you say, being engaged and doing work that they care about, and all the rest of it, but also making sure that people have enough to live and that they are able to do their bit, I guess you could call it, as consumers and look after the kids and the rest of it.
I’m definitely on a different page on these things. I really don’t believe… I do not believe that the current structure, where capital tells labour, tells talent what to do is right. Just because you are born with capital means that you are the master of the universe – it’s insane.
No, I agree.
That is the way it works.
But the gig workers, for example, that we’re talking about, the kind of contemporary situations of people who work for Uber or whatever the case may be. They have even less power relative to capital.
No way. Not at all.
If I think about gig work, I’m talking about highly skilled people who sell their services for a market-related fee, rather than working for McKinsey, who would take a margin of 50% or 100% or 200% on what they sell the consultants at. And then to pay for this huge infrastructure and partners who’ve been there for many years, reaping the profits.
I just think the whole system is just… it’s crazy when you look at that as an example. A corporate will go in and hire a McKinsey or a Deloitte or one of the big consulting firms – what Warren Buffett calls the Super Helpers – and the Super Helpers would charge out relatively junior staff at much higher than they pay those relatively junior staff and say, but that’s the way the system works.
And then they wonder why the relatively junior staff, who are doing all the work, make mistakes and are disengaged.
So, I feel that a much fairer option is the way that it used to be, where you didn’t need to have a big firm. And technology makes it possible. Technology brings in something… Take Fiver. We can go anywhere in the world now and get somebody who really needs five dollars to do a particular task that they can do and they can send it to me, rather than having to hire somebody who might be bored for 90% of the time, because there are certain tasks that are required to be done that don’t really make them terribly excited.
So, I just think that the Internet and technology and the networking effect has changed so much and the world of work hasn’t yet adapted towards it.
So, take a media company, a big media company, most big media companies still insist that their staff come into work every day in a building. Why? It makes no sense. As we know at Biznews, we can talk on Skype. We have our meeting, our editorial meeting. We communicate through Slack all the time.
We don’t have to go and brave an hour and a half in the traffic, or two hours in the traffic every day to go to some place to do work to be there so someone can control you and make sure that you’ve actually pitched up for work at a particular time.
So, I really do have a different view on a lot of these things. To me, people will do much better and they’ll be much more fairly treated if they have the freedom to be able to choose what work to do rather than being forced to do particular work. And then, of course, having that friction between employer and employee. But, you know, I do think differently on a lot of things.
I think that it’s two different things. I think you’re right when you’re talking about the highly skilled – you know, doctors, lawyers – they’ve always, well, not always, let’s not exaggerate, obviously there are law firms and hospitals and so on, but all of them work for themselves. And that works very effectively because they control, they have a lot of human capital, call it talent. And so, they definitely have the power to set their own terms.
And I think that it’s true in a lot of industries and for a lot of things – it can work better to have people who, the people who are ultimately creating the service, work independently to create that service. Certainly one lawyer can do the job right. You don’t need a whole firm of lawyers and a boss lawyer and all the rest of it.
But I do think you know that when you get further down the chain it becomes a bit more complicated, in that people who don’t necessarily have access to a lot of skills, who maybe haven’t come to university or whatever else the case may be, it’s harder for them to negotiate a fair deal.
But remember, just because they haven’t gone to university doesn’t mean that they aren’t able to upskill in particular areas.
I think there is a fallacy. There’s this fallacy that because people are poor, they’re dumb. They’re not dumb. There is a fallacy generally that the rich people must tell the poor people what to do and that’s crazy.
With technology – and if you have a look at a place like Tshwane, and it’s a very, very good instance, this thing that Alan Knott-Craig got going there with free Wi-Fi.
The areas around the free Wi-Fi are packed with new entrepreneurs. Exactly what GG Alcock was saying – people, when they’re given an opportunity and they get in there and they start looking at what is possible, they can upskill, they can they can watch YouTube videos, they can learn to become designers of banners and advertising banners, for instance. Whereas at the moment corporations would go through agencies and get charged an absolute fortune for it.
Now, you are opening up that opportunity to anybody. Some creative guy who might not even have had the opportunity to go through school, let alone through university.
So, it breaks down so many of those old barriers to entry and that’s what what excites me, is that you have become locked into some kind of a downward spiral, in fact, because of technology.
The opportunity is that you can sell to the whole world and if you want to earn more money there are ways that you can upscale yourself for free. And many of the international universities will give access, you can just go into YouTube and learn how to do pretty much anything that you wouldn’t have been able to or couldn’t do in the past.
So, you know, the gig economy doesn’t necessarily mean I have to sit in an Uber and driving Uber from midnight to 3-6am in the morning to make a living. To me, the gig economy means that I have a whole world into which I can sell my services and my services depend on how I desire upskilling myself and I have the freedom to decide if I want to invest in upskilling myself, then I should be able to charge more and I will be able to charge more for the services that I’m offering.
So, the whole industrial age structures are so archaic and so out of date.
You spoke about lawyers here in Johannesburg. You go to Sandton and you drive around and you will see that the biggest buildings, the most expensive construction, is all service companies. And if you think about it logically and rationally, those who are employing, those accounting and legal firms could, through the use of technology, get the same result by employing people who don’t necessarily have to be working under that umbrella which brings all kinds of costs along with it.
Felicity, you must do yourself a favour and just have a look at annual reports and what is being charged by these service firms and then what Buffett was saying, as well, about the the massive cost of the helpers and the Super Helpers to society and it’s that kind of thing.
I mean it’s not all or nothing. It’s not that they must be imploded and everybody must go into a gig economy. But the opportunity that exists now is something that that we’re seeing in many parts of the world, where people are moving more and more – the younger people don’t want to go and work for one company for life.
I remember sitting at WeWork in London amongst these youngsters and they’d be talking to someone about a new job, you know, someone phoning them or finding some employment agency or polishing up their CV. In this environment there is lots of upward mobility, because it’s a much freer market for labour.
If we look back in 20 years, we’re going to say “Oh you mean you used to work for a boss who said ‘Do this’, ‘Do that’, ‘Do the next thing’, get in the traffic and drive for an hour to come into an office where you’re expected to sit for eight hours and then get bored stiff during that time and then go back into the traffic. because that’s the time your boss wants you there. I think people are going to shake their heads and say, that was this insane system and a very wasteful one.
You know, we started off talking about the informal jobs, like Alcock was talking about, and the need to formalise them if we’re going to be able to finance infrastructure and development in South Africa.
Like, if that lady wants to sell more vetkoek and she needs a bit of money, it would be nice for her to be able to do that, to have access to that. But the principle of service work changing, I think I completely agree.
There’s not really any need to have it the way that it is and I think people are reacting against that.
The world is in such a state of flux right now in so many areas and very much so in work as well. We can’t expect that with technology having transformed so much of the way we work, the way we live, the way we think, that there wouldn’t be a massive impact on a system that’s been with us for 200 years. These structures, it just doesn’t make sense. I mean, at the moment if you’re a guy who works in a factory and you get replaced by a robot, you know, what happens. The robot is more efficient than you, they work 24 hours. They don’t want more salary. In fact, they depreciate in value.
My sense is that the person who’s working that factory should see it as an opportunity, should see the fourth industrial revolution as a way to upskill themselves and use it to their best advantage. Why shouldn’t they buy themselves a little 3D printer and with that little 3D printer be producing widgets, and that they are prepared to get in their car now and get it to the factory that needs to get to in five minutes. If there’s a breakdown, for instance, and charge a premium.
There are just so many opportunities. But the problem is we’re stuck in this old way of thinking where work and that’s why I extrapolate that through to what GG has to say was with the new world of work, a lot of it’s informal, a lot of it is serving other people is. And that’s exactly what the informal sector is doing, everything he was talking about was serving within society. So, I’ve got an extra ten bucks, I’ll go and have a haircut and there is a person who’s going to earn that 10 bucks for having a haircut.
I went to the licensing department in Randburg. You go into the licensing department and you don’t know everything you need and they want photocopies. So you can come out. There is a little informal kind of sectors, there’s a gate where there’s a guard so they don’t let the guys come into the licensing department to hawk.
But there are people standing there. And if you want a photocopy, you get it done for R5. Literally, you give the guy a fiver and he goes round the corner, gets a photocopy made comes back gives you the photocopy and in you go.
Now, if you think about that guy ,I don’t know what the margin is on that fiver and maybe the margin’s 100%. But he would be sitting there and he would be making money that I’m prepared to pay him, that he would then at some point in time spend in some formal, or some something which is within the tax net. So, he’ll be paying his contribution to the fiscus and hence to infrastructure and so on. So those are my thoughts on this whole thing.
But I mean who knows. It’s so complex and there’s so many interlocking parts. And society is changing so dramatically that if you unlock human potential and you allow human ingenuity to find an outlet eventually that will give you a much more sustainable and I think more prosperous economy.
