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Pension Funds
Friday, February 1, 2002
When push comes to shove....

Since the early 90s thousands of companies in South Africa have closed down citing, not economic difficulties or failures in business strategy, but  ‘labour problems’. Loss of jobs through withdrawal of entrepreneurial activity is costly to any country, especially one such as South Africa, which is facing a dire shortage of skills and a lack of capital. When you lose a job you also lose your pension rights.

Draconian labour laws, underpinned by affirmative action policies, have allowed the unions to politicise their own power base, forcing many workers to go on strike. The resultant loss of jobs and lower productivity is then blamed on government, and/or mean and greedy capitalists.
South Africa is not the first country to go through this destructive process. In the 60s and 70s labour movements across Europe and in Australia wielded mighty powers that threatened to bring down governments and ruin those businesses that preferred a free market approach instead of ‘collective bargaining’ and the reduction of values to a lower common denominator by the Comrades.
In the UK, for example, it took the Iron Lady to break the back of the unions in the 80s and get Britain back to work. But this was not before many traditional industries had been destroyed, partly by internal squabbling over a ‘living wage’ and the ‘rights of workers’, and partly from competition from the likes of Japan and other Far East countries. The UK’s coal mining, steel, shipbuilding, motor and motorcycle manufacturing industries were just a few of the sectors that were virtually destroyed over the decades.
Energy strikes from the coal and electricity unions in the early 70s, and persistent dockyard strikes, had already done their damage when the oil crisis hit world markets. It is hard to think of this now, but the inflation rate in Britain peaked at 25% in 1975. Labour inflexibility, a failure to develop and migrate skills to more productive channels meant Britain, for one, was unable to respond effectively to such external shocks.
If history is any judge it is unlikely any lessons will be learned from all this. Instead it may be the new world order that comes to our aid: disappearance of communism; ascendance of consumerism; a realisation that social welfare systems are incompatible with changing demographics; and a simpler philosophy that says people should rely more on themselves than on the State.
New laws are being introduced concerning the South African pensions industry, effectively giving employees more say in the terms and conditions of their pension rights and in where their assets should be invested. Boards of Trustees must include representatives of the workforce. But with this involvement comes responsibility.  Some unions have been pushing for affirmative investments from those pension funds that they can influence. This means less attention is being paid to investment returns. The consequences are beginning to be felt by workers, who are increasingly reluctant to support union initiatives when they ignore economic imperatives..
In one interesting case 40% of the work force has now decided to move from the union-dominated pension scheme to the company’s private pension scheme where the returns have been far better. The moral of the story is ‘Money Talks’ — and workers do want to work, do want to reach a better standard of living. Maybe they are beginning to realise that standing idly on the streets, waving placards in favour of causes they don’t understand is going to defeat, rather than promote that aim. By Nigel Benetton

Copyright © Insurance Times and Investments® Vol:15.1 1st February, 2002
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