A recent article by SEIFSA attempts to portray collective bargaining as the saving grace of business, and in particular, the Steel Manufacturing sector.

The statement is made that collective bargaining does not operate within a vacuum, but within the context of the economic and structural framework of the sector and the country as a whole.

This is obviously correct; however, it emphasises the need for bargaining council agreements to take into account the sector's economic realities and the different employers within it.  It makes no sense to continue to agree to exorbitantly high wages and other conditions of employment while the sector is receding.

Collective bargaining does not permit employers to make sensible decisions, to react to changing circumstances, or to reset to address new trading conditions.

In practice, collective bargaining does only two things: centralise the power of trade unions and legalise collusion between big businesses.

It is trite that trade union support is declining and is globally sitting at around 30%. It is also commonplace to hear the complaints by trade union members that unions are no longer serving them on the ground. Both of these are consequences of collective bargaining, and it is collective bargaining that is ensuring the survival of many trade unions. By centralising the collective bargaining power of trade unions under a bargaining council, they are being granted influence in the workplace that is no longer deserved.

The Competition Act expressly excludes collective bargaining from its scope, as any agreement between employers as to what employees should be paid, concluded outside the auspices of collective bargaining, will fall squarely within the definition of unlawful collusion.        
Collective bargaining increases wages and other conditions of employment beyond what market powers would have dictated. This much is acknowledged by SEIFSA. So why would SEIFSA then continue to participate and conclude these agreements?

There seems to be a number of reasons:

1. the SEIFSA membership consists to a large extent of larger employers;
2. larger employers are normally more unionised and therefore more susceptible to industrial action;
3. the wage component cost for larger employers as a percentage of overall costs is, in many cases, much smaller than it is for SMMEs;
4. these employers extend their agreements to the downstream, restricting competition in the process;
5. the increases are often passed down to the downstream manufacturers, which are the customers of the large employers; and
6. SEIFSA members are entitled to apply for exemption from the very agreement that they signed and forced upon other employers.

It is, in the end, a commercial decision in terms of which large employers would rather agree to higher, unaffordable labour costs than face the risk of industrial action at plant level. This, on the face of it, is a perfectly rational and understandable risk management strategy.

However, it is when these agreements are forced down the throats of, by far, the majority of employers in the sector that it becomes simply immoral.

SMMEs are far less likely to face industrial action than larger employers.  SMMEs cannot afford these wages for the sake of possible industrial peace. They do not care about peace if they have no business left, and employees do not care about wage rates if they are unemployed.

For SEIFSA to wave a magic wand and state that “the system provides genuine, accessible relief for struggling employers” as a solution to the problem is simply a red herring. Yes, exemptions are available, but only for struggling employers. Therefore, if an employer is not insolvent or nearly so, it simply will not get an exemption.

Under the collective bargaining regime, employers may not make a profit, may not earn a good return on investment, and may not be rewarded for the risks and sacrifices they made in establishing and building the business if they wish to apply for an exemption.

SEIFSA bemoans the fact that detractors of collective bargaining, which includes NEASA, do not provide an alternative model. The only viable model, as proposed many times before, is a free market, where employers compete for employees and labour costs reach a natural equilibrium. A model within the collective bargaining context is one where each organisation negotiates an agreement suited to its particular membership.

It will be argued that a free-market model will cause a race to the bottom in terms of employee wages; however, employers require skilled, motivated, and productive employees if they want to be successful. These employers will simply have to pay what the free market demands if they wish to secure and retain these motivated and skilled employees. This will also create space for more talented and effective employees to be promoted and rewarded for their contributions, a privilege which they are currently denied by collective bargaining.

Collective bargaining is not the cure-all for the steel sector, or for any other sector for that matter.  It should indeed be viewed within the context of a very difficult economic reality. Imposing inappropriate conditions of employment on a struggling sector only exacerbates the problem.

SEIFSA utilises the collective bargaining system because it works for their large members and dismisses any detractors. However, if the shoe were on the other foot, and these types of unaffordable agreements were imposed on their members, against their will, they would complain even louder.

If large companies wish to bargain centrally to safeguard their interests, they are of course free to do so; then they can agree to whatever they want to, provided they let the rest of the industry be.     

Collective bargaining is the safeguard for large employers, but the downfall of the rest.

Opinion piece by Gerhard Papenfus is the Chief Executive of the National Employers’ Association of South Africa.