Opportunity for Maimane in Ramaphosa's inauspicious start

John Kane-Berman says the DA leader should push further with plans for labour market reform

Cyril Ramaphosa's inauspicious debut provides opportunities for the DA

Three months ago the leader of the Democratic Alliance (DA), Mmusi Maimane, said it was "wonderful" that Cyril Ramaphosa had adopted the DA's economic policy. President Ramaphosa's contradictory policy pronouncements and his recent re-appointment of a number of his predecessor's dodgy ministers have presumably by now disabused Mr Maimane of his previous illusions.

The DA leader's recent statement calling for fundamental policy reform that emphasises "robust economic growth" above redistribution is itself fundamentally at odds with Mr Ramaphosa's radical economic transformation ideas. So is Mr Maimane's call for a "wholesale change" away from "race-based" empowerment policies. In addition, his call for a one-year pay freeze for all but the lowest-paid civil servants goes against the recent budget's provision for generous pay rises.    

Moreover, while Mr Ramaphosa has dusted off the supposed panaceas of job summits and social compacts, Mr Maimane has started to put more flesh on the bones of the labour market reform he has previously spoken about. While the leader of the African National Congress (ANC) hails the forthcoming introduction of a national minimum wage, his DA counterpart wants young people to be exempted from restrictive labour legislation, including the national minimum wage.

Unfortunately, however, there is a catch. Mr Maimane says that the exemption should apply only to youngsters and to businesses with fewer than 250 employees. This limitation makes no sense. Instead of encouraging businesses to expand and generate more and more jobs, it will help to ensure that businesses keep their employment levels at 249.

This is what has happened in France. A study by Jean Tirole, chairman of the Toulouse School of Economics and winner of the 2014 Nobel Prize in economics, showed that when a French firm moved from 49 to 50 employees, it faced 34 additional legal obligations. Professor Tirole also showed that the number of firms with between 47 and 49 employees was much larger than the number with between 50 and 69 employees.

Although the French ceiling of 50 is much lower than Mr Maimane's proposed 250, the disincentives are likely to work in the same way. If you penalise firms by forcing them to pay higher wages when their payroll reaches 250, they will make sure it never does. Mr Maimane is correct in criticising labour legislation as a "massive deterrent to entrepreneurs". But he is only half right in suggesting that "we need to free up small business to encourage entrepreneurship". Why only small business? And then why discourage small businesses from becoming big ones?

It is of course essential to liberate small business from red tape. But the country needs to scrap its obsession with small business as if only small business was the way out of our unemployment problem. Does South Africa not need the kind of entrepreneurship that would be on offer from major mining companies if only the mining charter were to be scrapped?

Do we not need major construction companies to expand their operations in this country instead of chasing them away, as incessant government interference and incompetence are doing?

Mr Maimane is right to point out that South Africa's labour legislation favours big business over small business. One of the worst examples of this is the extension of collective bargaining agreements to employers and employees who are not party to them. Mr Maimane is right to call for the removal of the extension system.

French experience here is useful too. One of the liberalising reforms enacted last year by President Emmanuel Macron's government was to enable the smallest companies to set their own pay and working conditions at firm level. This is exactly what many smaller South African companies in the clothing and engineering sectors and elsewhere wish to be allowed to do.

While Mr Ramaphosa continues to shy away from recognising the need for labour market liberalisation, Mr Maimane has an opportunity to cut through all the doubletalk and to seize the initiative in providing the intellectual and policy leadership the country requires.

* John Kane-Berman is a policy fellow at the IRR, a think-tank that promotes political and economic freedom.