Saving the public sector is critical for a just recovery

by Aug 3, 2021Amandla

Saving the public sector is critical for a just recovery 

Dominic Brown | Amandla 76 | June/July 2021

There must be greater government intervention in the economy, and public services have to be restored. These have been two of the primary lessons that many have drawn following the world-changing outbreak of Covid-19. Even the International Monetary Fund (IMF) has changed its tune. And it was one of the main culprits behind the policies leading to the erosion of the public services globally. For example, the IMFs Fiscal Monitor Report, April 2021, points out that: “The Covid-19 pandemic has focused attention on governments and their ability to respond to the crisis. 

The pandemic has laid bare the damaging impact of the hollowing out of the public sector after almost four decades of an increasingly financialised, deregulated and commodified global economy. 

So, there is widespread acknowledgement that restoring the public sector needs to play a central role in advancing a just recovery from the pandemic. In spite of the millions of lives lost over the last year and a half, this is a small silver-lining. 

And restoring public services is potentially even more fundamental to give the world the best possible chance of averting an ecological catastrophe. 

Unfortunately, this widespread acknowledgement has not translated into a break from “normal” practice. And that normal has contributed significantly to the creation and spread of the pandemic, as well as the lack of capacity to effectively respond to it. Similarly, it has contributed to the destruction of the planet and the ensuing ecological crisis. 

Neoliberal austerity rises again from the pandemic

Amidst discussions about how the economy should be restructured post-Covid-19, we are already seeing the consolidation of a neoliberal macroeconomic framework in large parts of the world – particularly in developing countries. In other words, going back to the old normal, but this time more intense than before. A recent report, Global Austerity Alert, indicates that, in 2021, 154 countries will implement major budget cuts. And that’s a trend that continues at least until 2025.

Some underlying principles of this framework include:

  • Austerity budgets: reduction in the level of public spending on social services and the shrinking of the public sector wage bill; 
  • Perpetuation of an export-oriented growth path driven by the extraction of minerals and commercial agriculture. This is enabled by greater levels of trade liberalisation and the further deregulation of financial markets; and 
  • Creation of an enabling environment for greater private sector involvement in the economy. This includes the roll-out of public-private partnerships and the increased privatisation of essential services. 

According to the Global Austerity Alert, cuts to the wage bill feature in 61 developing countries. That makes it one of the more common features of the current version of neoliberal austerity measures. 

South Africa austerity

In South Africa, we will see a reduction of more than 9 percent in real terms from the public sector wage bill over the next three years. 

In the Treasury Director General’s Foreword to the 2020 Budget Review, he acknowledges the adverse impacts that these cuts will have: “Public‐service employees should be fairly remunerated, but government is obligated to balance its wage bill with the broader needs of society. Reductions of this magnitude will inevitably have negative consequences for the economy and social services. But these short‐term costs are necessary to put the country onto a more sustainable footing.” 

However, the European Network on Debt and Development (EURODAD) disagrees. Its report Arrested Development – International Monetary Fund lending and austerity post covid-19 finds that the impact of the reduction of the wage bill will have much longer-term adverse effects: “As part of IMF financing, public workers in countries such as Costa Rica, South Africa and Tunisia can expect extensive layoffs and reductions of their wages over the coming years. Large reductions in the public sector workforce will further erode the coverage and quality of public services…this will cause long-term harm to local populations.”

This country can ill afford to reduce the numbers of its public sector. With just over 1,300,000 public servants, the size of the public sector has hardly grown since 1995 when the number was 1,269,000. Meanwhile the population has increased. Treasury itself expects the effect of real wage cuts and other measures will lead to staff leaving public service. Already the size of the public sector as a percentage of the population is only just over 2 percent. That’s just under half the average in Africa and more than three times less than the average in middle-income countries. 

In the health sector, a 2020 report by the National Department of Health advises that 96,586 additional health workers will be needed at an additional cost of nearly R40 billion (to the wage bill) to bring the lowest ranked provinces up to the current equity level of the third-ranked province by 2025. Yet we see the wage bill over this period slashed. Based on 2018 figures, health care and education comprise 60 percent of the public service work force. The contradiction cannot be more in your face than this. It should be a bitter pill to swallow for public sector health workers and teachers and the majority of South Africans dependent on public services.

Inequalities in Public Sector

Major inequalities persist in the public sector. There are 17 grade levels. The bottom 5 grades (0 to 5) make up 44 percent of workers, yet they only receive 18.2 percent of the total wage bill. Conversely, the top 5 grades (12 to 17) make-up 2.7 percent of workers but receive more than 11 percent of the wage bill. These 37,500 workers earn between R87 000 and R157 000 per month. 

Curbing the top levels of the public sector wage bill is important. But this should be coupled with expanding the workforce as a whole. Especially considering the massive levels of unemployment and the lack of essential services provided to the majority of the population. 

The size of the wage bill

This may of course lead to an increase in the wage bill. There are many potential pools of revenue that government can look to in order to finance a bigger wage bill that forms part of a broader redistributive economic policy. The appropriate size for the wage bill should be determined in the end by how many people are required to effectively deliver and provide the essential services needed by the population. 

Then there are different ways of measuring the wage bill. One way is to look at the wage bill as a percentage of revenues raised (taxes); another way is as a percentage of gross domestic product (GDP). Both revenue collection and GDP have been stagnating and / or falling in real terms for various reasons. That means that, even if the wage bill remained constant, the ratio to tax and GDP will increase. But this tells us very little about actual spending on the wage bill. 

Another way to measure is to assess how much is being spent on wages as a percentage of total government expenditure. By this metric, wages remain relatively constant as a share of total consolidated expenditure after the introduction of Occupation Specific Dispensation (a salary structure based on occupation introduced in 2007). It hovers around 35 percent. 

Treasury’s strategy

It is from this time that Treasury first re-introduced policies aimed at curbing the growth in government spending. From 2012, we see the establishment of the main budget expenditure ceiling. This started a process of restraining spending on investment in infrastructure and social services. This contradictory process embarked on by Treasury has crowded out government spending on other aspects of social services, and not the “rising” wage bill. Michael Sachs (former Deputy Director General in the Treasury’s Budget Office) refers to this as “austerity without fiscal consolidation”. 

Treasury and big business are disingenuous when they present spending on essential services and spending on the wage bill as mutually exclusive. It is public servants who are responsible for the provision of those essential services. It is also misleading to argue that government is unable to spend enough on infrastructure and social investment because of high increases to public servants. 

Even if government’s tactic is underhanded, it is understandable from a cynical perspective. But in reality, the struggles of the masses of unemployed dependent on public services and the struggles of the public servants responsible for delivering those services are closely intertwined. Dividing the two into opposing camps serves the interest of the rich (including government officials). 

On the other hand, an alliance between the unemployed and public sector unions could be the basis of a campaign to reclaim and expand the public service sector. This will necessitate putting an end to austerity, which is dominated by the cuts to the public sector wage bill. In this way, it’s clear: saving the public sector wage bill is not just about workers’ wages; it’s about a just recovery for the majority of South Africans. 

Dominic Brown coordinates the Economic Justice Programme at AIDC.

The Alternative Information and Development Centre (AIDC) has applied to the Constitutional Court to be admitted as an amicus curiae (friend of the court) in the Public Servants Association and Others v Minister of Public Service and Other. 
Public sector unions are challenging the government's decision to renege on the final year of the 2018 public sector wage agreement. The Labour Appeals Court held that government was permitted to renege from the agreement. The Constitutional Court will hear the union’s appeal on 24 August 2021.
  
In AIDC’s application, we will argue that the Labour Appeals Court’s decision - which held that cutting (real) wages was part of an economic recovery - was fundamentally neoliberal. AIDC will argue that the Constitutional Court should steer clear of this ideological pitfall. Neoliberalism has no place in crafting just and equitable court orders. 
  
Specifically, AIDC will:
  
 ● explain that just and equitable orders may not be neoliberal;
 ● illustrate how the Labour Appeal Court’s judgment, and the state’s approach to this appeal, are both neoliberal; and
 ● urge this Court to craft a remedy in this matter that does not rely on neoliberalism.
  
The purpose of our submissions is not to convince the Court to adopt AIDC’s preferred ideology. The purpose is to ensure the Court is mindful of ensuring that neoliberalism does not silently creep into its reasoning at the expense of constitutional rights.
  
AIDC is represented by Richard Spoor Inc, Attorneys.
  
See AIDC’s application here 
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