The ‘youth wage subsidy’- the DA and ANC are in alliance with Anglo American against Cosatu and the rest of the working class


On the 15th May 2012 the DA marched on the Cosatu Head office in Johannesburg to demand that the ANC proposal for a ‘youth wage subsidy’ be implemented. The DA march was for lowering the wages of all workers, tearing up the gains that workers had won through many years of struggle.  Workers have every right to march on their union offices, to occupy them, holding their leaders to account for breaking mandates or for not representing their interests. We recall, for example, the case of the SARHWU workers who occupied their union offices and kicked out their national leaders because they signed an agreement without a mandate from their members. But the DA march was aimed at destroying working class gains and thus was correctly repelled by the counter-march of workers and youth.


The call for a youth wage subsidy in South Africa comes from the US imperialist Harvard advisors to the ANC government. The Harvard team are driving economic policy for the Zuma administration as much as they did to the Mbeki-led regime. [Polokwane just changed the face of the manager of imperialist control over the masses].


The ANC and DA want R5bn from public funds to be used to pay the bosses to create slave wage ‘jobs’. They turn a blind eye to the R600bn that Anglo American and others smuggle out of the country every year, through transfer pricing (declaring export goods far below the actual value so that the real sale value is realized outside the borders and fully for the profit of the capitalists); this is besides the R600bn that are officially declared profits of the capitalists, most of which is not reinvested here but taken offshore by the very same Anglo American and others.


The DA and ANC want to hide the fact that Anglo American and other monopoly capitalists are responsible for the mass structural unemployment, not only in SA but in the region, and indeed all over the world.


The path to full employment for the youth can only be through the expropriation of the commanding heights of the country, without compensation to the capitalists, and placing these under workers control.


Structural unemployment- an inherent part of the world capitalist crisis

Capitalism requires unemployment- the greater the unemployment, the more competition there is between workers for jobs, the less the wages. Capitalists need to pay workers just enough so that they keep returning the next day for work or face starvation. By about 1900 the world had been carved up between the various imperialist powers (USA, Britain, France, Germany, Japan, and to a lesser extent Italy, Spain, Portugal, Greece, Holland, Belgium). The only way the various imperialists could advance from then onwards was to take by force, from another imperialist power. Thus opened a period of wars and revolutions. The 2 world wars were wars between the imperialist powers for a re-division of the world among them. From 1900, world capitalism has been in decline; thus while there is now here and there technical progress, the trend is still one of general decline.


From the late 1990’s and early post 2000 period, there has been great development of computers and cellphone technology but this has gone hand in hand with wars in the DRC, the source of much of the raw materials for laptops and cellphones, where over 6 million people have died and millions more displaced so that Anglo American and other monopolies can lay their hands on the wealth of the country. Today the monopolies control over 80% of the arable land and most of the mineral wealth, in the world. There is an interconnected ownership of the major banks and major industries in the world. The major banks own the major industries and the major industries own the banks- this a key feature of imperialism.


Because the world economy is stagnating, there have been scams that the monopoly capitalists have come up with to take more profits from the masses of the world. Around the world, suddenly, virtually overnight, house prices have doubled and tripled, creating huge artificial profits for the major banks of the world. House prices have increased the most in South Africa over this period, than anywhere else in the world, over 400% (4X).


Other scams include the sudden hikes in food and energy prices, purely as a means of the monopolies wanting to not have lower profits, ie to sustain ever growing profit levels. The report of Masters into high food prices in the USA showed for example, that while the real cost of cornflakes was 3  US cents, it was selling for 90 times that in retailers.


Further scams included fake infrastructure programmes where airports, shopping malls, and additional coal and nuclear power stations would be built even though there was no real need for them and where cheaper, more sustainable alternatives were available. Other scams include what is called derivatives, which is speculating on what future housing, food and mineral prices are going to be.


Another important mechanism for the world capitalists to increase profits was for imperialist companies to shift production to the massive slave camp which is China. For example, Apple shut all their production units in the USA and moved them to China. Hundreds of thousands of factories closed down around the world, as the big capitalists shifted their manufacturing units to China. The major banks, such as JP Morgan Chase, Deutsche, Credit Lyonaise, Citibank, Goldman Sachs, HSBC etc, with their control of the world’s major retailers, shifted their orders to the slave camps in China, where huge factories of thousands of workers were set up with the help of the main labour broker in China, the Chinese Communist Party.


Matters came to a head in 2008-9 when millions started defaulting on housing loans on massively inflated property values. The manufacture ‘boom’ that went with the housing bubble, also exploded and over 100 million workers were retrenched world wide.


In every country in the world, the youth unemployment is 2 or more times the average unemployment rate- this is a structural feature of world capitalism. Since 2008, this has gotten worse- this is why the youth around the world are leading the revolts against the regimes- they realize that they do not have a future under the current system.


The Chinese workers have started rebelling- for the past 3 years there has been a massive strike wave- in 2011 there were 160 000 strikes in China. Workers are winning wage increases. Today the rural Chinese worker has won a wage of $200 per month for a seven day working week (this is R1500 for the month for working seven days a week). The worker in the industrial southern China has won a hourly wage of $0.80 per hour (this is R6 per hour and R1636 per month for a seven day working week, assuming a 9 hour working day). Today, as a result of the struggles of the Chinese workers, many workers have gone back to the rural areas and there are huge labour shortages in the southern industrial belt. Wages are rising in China- no longer are the capitalists assured of cheap labour of the past decade. The capitalists are looking elsewhere in the globe- India, Vietnam etc.


When Anglo American and other capitalists say that they want workers in South Africa to be competitive, they are referring to competition with the Chinese rural worker earning R1500 per month, working 7 days a week.  It is this drive by the monopoly capitalists to lower the wages of the working class in South Africa, that is behind the proposal by the ANC and DA for the ‘youth wage subsidy’.


What is at the centre of the ANC-DA proposal on the ‘youth wage subsidy’?

The principal aim of this scheme, according to the July  2007 Treasury report is to reduce the cost of labour, that is, to reduce wages. The ANC government says that by reducing wages, profits of the capitalists will increase and then they will employ more workers. In other words, this is same ‘trickle down’ principle of GEAR, Asgisa, and in general of the imperialist IMF: make the bosses more rich and they will create jobs, according to the ANC-DA alliance. Gear and Asgisa has failed to create jobs and there is no reason why the ‘youth wage subsidy’ will succeed now.


What are the central problems with the ‘youth wage subsidy’?

Firstly, the main aim of the capitalists is to make profit, not create jobs. Thus in the days of apartheid, when there was a jobs subsidy, the bosses just submitted a fake list of workers and pocketed the subsidy. This has also happened recently in the USA.


Secondly, in the past, once the bosses received the subsidy, they just retrenched the workers.


Thirdly, where there was a regional subsidy, such as creating jobs in the bantustans, the capitalists would just close their factories in urban areas and move them to the bantustans, paying the workers very low wages. Once the subsidy ended, the capitalists would just close up and move on to another area where their costs would be the lowest. This occurred not only in the apartheid era in SA but also recently in the USA. The DA wants the ANC government to implement the wage subsidy on a regional basis- the danger is then that some companies would close up where they are and move to the Western Cape, just to claim the subsidy.


Fourthly, higher paid workers could just be retrenched and replaced by lower paid workers. This has already been happening for years where bosses retrench workers and then hire some of them back without benefits and at low wages through labour brokers. The ‘youth wage subsidy’ could lead to entrenching of labour brokers who will just recycle youth every 6 months through their books. The big companies who were responsible for dismissing 1 million workers since 2008-9, would now have a platform for a new round of mass dismissals, while being indirectly subsidized through state funds. When the DA and ANC says that the labour market is too rigid, they mean that there are a number of union agreements in place that would not make it easy for the bosses to retrench workers. The ANC and DA wants the labour law weakened so that it is easier to dismiss workers. If the labour law is weakened then the bosses will continue with mass retrenchments and replace higher paid workers with lower paid young workers. This does not lower unemployment but increases the suffering of the working class. There could thus be a mushrooming of more labour brokers.


Fifthly, there is the danger that the subsidy will be paid for workers that companies will have employed even if there was no subsidy. This would just enrich the company without any real gain in employment. This was the case in Ireland where 91% of subsidized workers would have been employed in any case by the bosses, even if there was no subsidy. The ANC govt admits that of the subsidized youth who are permanently taken on by companies, at least half of them would have been taken on even without the subsidy. In this case, paying the subsidy to the bosses amounts to theft from public resources- the ANC and DA have no problem with this.


Sixthly, if only a few companies in a sector receive a subsidy, then they would be able to sell their products more cheaply than those who do not receive the subsidy. Over a period the un-subsidized companies could be forced to close. Thus selective use of the subsidy, as what the DA is proposing for some companies in the Western Cape, could lead to more job losses than employment gains.


Seventhly, there is the question of stigma. In most countries, where there are wage subsidies, most workers are dismissed when the subsidy ends. Thus, when young workers go again to seek employment and companies see that they have already been on a wage subsidy programme, the bosses are reluctant to take them on. Thus a worker who has been on the wage subsidy once could find it even more difficult to find work than before. This is the case of the Chile Jovem programme where only 6% of subsidy workers are actually taken on permanently. The wage voucher programme in the USA is another example where bosses are reluctant to employ those who come a second time with a wage voucher.


Eighthly, once the wage subsidy system starts, the bosses will be reluctant to raise wages as they want to keep wages low enough to enable them to qualify for the subsidy. The wage subsidy will thus have the effect of a generally lowering of wages, and thus greater suffering.


Ninthly, there is the question of who will pay for the wage subsidy. The 2007 government document to the Unemployment Insurance Fund claims that the expenditure has to be between R20-R30bn. Where would money come from to enrich the bosses, in the vague hope that jobs would be created? Possible funding sources that are: increasing VAT, increasing taxes, decreasing public expenditure. Currently, public sector workers wages are being cut to help create funds to enrich the bosses in the hope they will establish more, low wage jobs for the youth.


Tenthly, the whole of Africa, including South Africa, has been treated by the monopolies as mainly areas of production of raw minerals and unprocessed food. The small manufacturing sector in South Africa shrank even further since 2008-9. There are only about 1.5 million workers in manufacturing. The ‘youth wage subsidy’ as proposed by the ANC-DA alliance is not linked to training for real expansion in manufacturing. For example, there are no plans for training diamond cutters and polishers that could process all the diamond production here, instead of having 99% of it shipped off to Israel for this purpose. There is no plan to link training to beneficiation of gold nor of metal products such as for computers and electronics. It is no accident that the diamond, gold and iron ore mines are controlled by Anglo American whose deliberate policy is to keep SA as a source of cheap labour.


More than 60% of the unemployed have not completed secondary schooling- the ‘wage subsidy programme’ provides no real training mechanism for these workers; nor indeed is there any effort to ensure that such a training mechanism is in place for any youth, even with matric level qualification. Without a strong, well-defined training programme, a youth wage subsidy will fail as the nett result will be the replacement of older cheap labour with younger cheap labour, and no gains in employment.


But even with a strong training component, a real expansion in manufacturing will only come about through challenging the stranglehold of Anglo American and other monopolies over the wealth of the country. Thus, even though the ‘plan’ is that 140 000 youth ‘jobs’ will be subsidized each year for the next 3 years, once the subsidy ends, the youth will most likely be dumped out onto the unemployment line again, or some higher wage worker would have been retrenched and the youth fills his/her place. We need also remember that every year 400 000 new school leavers enter the labour market- thus this scheme does not even come close to even keeping unemployment from increasing.


More than 70% of the workforce are not unionised. Over the past 2-3 years, tens of thousands (if not hundreds of thousands) of small companies closed down. Many of these companies paid their workers less than the levels of the unionised factories- yet they closed down. According to Cosatu statistics, the average wage is less than R1000 per month. These thousands of companies were paying their workers this or less and still closed down. What makes the ANC and DA think that just because of a subsidy that suddenly 140 000 new workers would be taken on without displacing existing workers? Even if some are taken on, the current conditions will mean that as soon as the subsidy ends, most of these workers will be tossed on the street again. Many companies may have realized that they have retrenched too many workers in 2009- why should they be paid from public funds to employ new workers at slave wages, when they should be employing them at the current going rate?


Preparing the way towards a compulsory pension fund?

The state is also thinking about linking the ‘youth wage subsidy’ to covering some workers and company contributions to the planned compulsory pension fund. This is an extra 10% tax on all workers who are not in an existing pension fund. Thus some of the lower paid workers could have their pension contribution subsidized for a while. There are at least 2 problems with this. Up to now, the state pays a general pension to anyone who reaches pension age (assuming they do not have a pension already). But in future, this pension will now come from the workers own direct contribution. This means that the pension funds that the state currently spends will be diverted into the pockets of big capital. Secondly, the state plans that this pension savings paid by the worker would not be available to them if they should lose their job (like the current Providend funds allow). The money will only be available once the worker reaches a pension age. Considering that most workers die before they are 50, these pension savings will really just be handed over to the capitalist banks for profiteering. The state is now fond of quoting the ‘Grootboom’ case, showing how the Constitution guarantees the rights of workers. We should remember that Grootboom died before she received her house.


The start of ‘workfare’?

The state is also considering compelling workers that may be retrenched, to work in a ‘wage subsidy’ job before qualifying to receive UIF money. This would amount to forcing a lowering of wages as the subsidy job is likely to be at a lower rate than what the worker had been working for. It would also encourage more companies to begin to dismiss more workers. Around the world, capitalist states have used ‘workfare’ as a means to lower wages for certain categories of work, such as in the public sector, as a means to cut public expenses and divert more funds from state coffers into that of the capitalists. The caregivers, teacher assistants and police reservists, who all receive only stipends and not standard wages with benefits, part of the proposals of the Dept of Social Welfare, are examples of ‘workfare’ already being implemented. These are all measures that the IMF supports in the re-direction of public funds from the state into that of big capital.


The DA uses the case of Singapore, Chile and Turkey to support their arguments. We examine them one by one:


The case of Singapore

It is interesting that the DA promotes Singapore because it is a fascist dictatorship where workers have no right to challenge any retrenchment. The unions are so closely tied to the state that there are a group of MP’s (members of parliament) that oversee the unions. Workers rights are so curtailed that there has only been 2 days of strikes since 1978. Workers have no real right to bargain for wages. There is no social security in Singapore. Workers and bosses each pay 25% of the workers wage towards the worker’s pension. For many years, whenever there has been a crisis, the employer would be able to stop paying the 25% contribution to the worker’s pension. Thus each time there is a crisis, the worker takes a wage cut. The conditions are so tough that many workers are forced to work until their 70’s or 80’s in order to survive.


The DA is correct that the unemployment rate dropped by 50% between 2003 and 2007, but this was not due to any wage subsidy. The official unemployment  rate dropped from 4% to 2%. But since 2007 the official unemployment rate has started to rise despite the 12% wage subsidy scheme which only started in 2009. This subsidy was for low waged workers who were older than 35. Who knows what the real unemployment rate is in Singapore, which describes 25% of the population as non-citizens- their conditions are not counted in the official statistics.


There is also no freedom of the press. While Singapore scores the highest for literacy and numeracy for primary school, its participation rate for high school is only 25%- they do not take part in the tests for high school literacy and numeracy. Thus it is a cheap labour Mecca for the capitalist which list it as the most business friendly country in the world. Not surprising, the USA has a free trade agreement with this fascist dictatorship.


The case of Turkey

Firstly, the Turkey youth employment programme is only a regional pilot study that has just started in Nov 2011 and has yet to be evaluated. Past efforts to implement a wage subsidy in Turkey merely resulted in more companies registering rather than employment increasing. In fact over the period 2000 to 2009 during which a wage subsidy scheme was attempted, youth employment grew steadily from 19% to 25%. Youth unemployment fell between 2009 and 2011 from 25% to 18% when there was no wage subsidy scheme.


Even the current pilot youth programme is limited in that it has as its central feature the employment of 8000 counsellors who would advise youth where existing vacancies and training opportunities are, hardly a job creation exercise. Another feature is to consider giving tax cuts to bosses and to exempt them from paying certain social security contributions. Once again the principle is, make the bosses more rich and hope they create jobs- a trickle down approach that has failed everywhere on the globe. The Turkish economy grew the fastest, 7-8% per annum, between 2000 and 2006, when youth unemployment grew to historic high levels.


Turkey allows children aged 14 to enter the labour market. [Compulsory schooling ends at age 13]. It has a 30% unemployment rate for those with tertiary education- the highest from all groups of education. Overall, unemployment decreases as level of education decreases, which shows that Turkey is another cheap labour economy, like many other semi-colonies. Repression of government opposition is brutal. Despite having elections, it is a military dictatorship. In February this year 15 female trade unionists were arrested merely for planning an International Women’s day demonstration. Mayday every year is brutally suppressed by the regime. There are 4000-5000 criminal cases against journalists for ‘defamation’ and ‘terrorist propaganda’. Any attempt to report police brutality is illegal. This brutal police state is the second biggest recipient of military ‘aid’ from the US regime.


The case of Chile

Training for youth in the Chile Jovem programme is run by institutes that are set up to make a profit out of providing their services. Nevertheless, the training provided has been described as ‘poor’. The gains made by this programme is questionable as only 6% of youth that pass through this programme end up with permanent jobs.


When training is provided using company facilities, the company is not obliged to pay any wage to the young worker; the worker would receive a maintenance and transport stipend from the state which has been set very low as the programme does not want to lure other youth who may be at school or in permanent jobs to join the programme. The level of pay is about 50% of the union wage. While the youth are on the programme, they are not covered by any labour law nor do they receive any social security coverage. The youth can be dismissed at any moment nor are they covered if they are injured on duty. There is also no guarantee that the young worker will be employed after the 6 month training period.


Much of the repressive apparatus from the dictator Pinochet period is still intact. The police are brutal in their suppression of protests.


More than half the secondary schools and universities are private. Structurally, most of the working class are excluded from gaining tertiary education, which they see as the gateway to employment and a better life. The total failure of Chile Jovem to meaningfully address youth unemployment is shown by the pre-revolutionary situation that has existed since last year in Chile. The youth have spearheaded revolts, organised sit-ins and occupations of schools and universities, the central demand being to abolish private education and for the creation of free education. From the barricades of Chile the youth have raised the call for the total nationalization of the mines, without compensation and linked this to free education. Chile, like South Africa, has been kept as a producer of raw, unprocessed copper. Anglo American controls the copper mines in Chile and are directly responsible for youth unemployment there.


Conclusion and way forward

Capitalism is responsible for youth unemployment. Youth unemployment and unemployment in general can only be overcome through the working class overthrowing the capitalist system. The ‘youth wage subsidy’ is a means for the capitalist to reduce workers wages in general; it is a means to increase the rate of exploitation and will lead to more unemployment and suffering.


The Cosatu leaders direct our eyes only towards training but this covers the role of Anglo American and other monopolies play in ensuring that Southern Africa is a cheap labour economy. A capitalist economy today by definition means high youth unemployment. Relying only on training to solve youth unemployment is like giving morphine to a cancer patient instead of cutting out the cancer itself, ie instead of dealing with the capitalist system, once and for all.


The immediate funds for the creation of jobs are there: the R600bn that Anglo American and others smuggle out of the country every year through transfer pricing. No to reduction of public services and public sector wages to fund the bosses for wage slavery and more retrenchments.


Share all the work among all who can work, without loss of pay. Ban overtime; shorten the working week, without loss of pay.


It is time for Cosatu to break the alliance with the capitalist ANC-SACP government.


Nationalize Anglo American and other monopolies, without compensation, placing them under workers control. Here is the path to not only employment for all youth, but for all unemployed. Here is the path for decent housing for all, free, quality medical care; free liberatory education up to the highest level. Such a fight starts here but must extend to all Southern Africa, into the imperialist centres and indeed on an international scale.


Workers International Vanguard Party stands ready to fight side by side with any working class formation and progressive that supports the above. Let us prepare the way for the formation of general strike committees, comprising delegates of the employed and unemployed, workers’ delegates from the factories, irrespective of their union, irrespective if they are permanent or casual, or local or immigrant, unionised or un-unionised. Let us extend and broaden the Cosatu Congress into an emergency workers’ summit, let us place a real fight for the expropriation of the expropriators, on the agenda!