Research and analytics group Intellidex has published a new report looking at public-sector worker pay in South Africa and how rising government spending can be successfully addressed.
The report, which was commissioned by Business Unity South Africa (BUSA), proposes the introduction of a ‘state-centric social compact’ – an agreement which would see government and public sector workers agree to minimum standards for both wages and productivity.
Intellidex said that this compact would have three essential components:
- An agreement on ratios of payroll costs to GDP and to tax revenues that are sustainable;
- An agreement on the time frames over which the adjustment is to be made; and
- An agreement that government, public sector unions, and business will work together to develop productivity enhancement plans for the public service.
While the first two points are well established, Intellidex said that it is also key that the government enters a ‘public sector productivity pact’.
“Historically, public-sector unions have resisted government’s attempts to implement any kind of productivity-enhancing initiatives,” the group said.
“Teachers unions, for example, have resisted the introduction of standardised national tests below matric, the annual national assessments, for fear that these might evolve into a mechanism for performance-related pay.
“They have also resisted technologies to track time and attendance, as well as even the mundane oversight of school inspectors.”
In the context of poorly performing public services and a dire need to control costs and enhance productivity, this approach is unhelpful, said Intellidex.
“It is critical, therefore, that government and business seek to compact with unions to help design and participate in a rigorous, reliable, transparent, credible and legitimate process aimed at generating a deeper understanding of productivity challenges in the public sector and how to address these.”
Intellidex said that business, which has mobilised a large fraction of South Africa’s consulting talent in the development of its proposals for an economic recovery strategy, might make a similar commitment to a programme of this kind.
“To do this well would be a very substantial undertaking. The value of success, however, would be extremely high. It is, therefore, a project that could become central to any social compacting process,” it said.
“Labour always wants to know what business is bringing to the table, and this could be a key offer we think that adds value.”
While public sector remuneration has grown very rapidly, and at a rate that far exceeds the growth rate of the economy, few believe that the value added by the public service has increased at anything like the rate of remuneration growth, said Intellidex
“In fact, it is somewhat fanciful to think that levels of output have even remained flat, and it is much more likely that they have declined,” the group said.
“The divergent trend of remuneration growth that is faster than the rate of growth of GDP combined with declining output from the public service implies a rapid decline in public sector productivity. ”
Intellidex said that addressing this is critically important if South Africa is to get value from the 35% of national resources that the public sector consumes.
“We believe that a key proposal should be that government embark on a process of rigorous productivity reviews in all its main functions, each aimed at assisting to find mechanisms to raise output significantly within existing budget constraints,” it said.
Because this is the public service, the work would be somewhat more politicised and, ideally, organised labour would be a willing partner in the endeavour, Intellidex said.
A different kind of difficulty is that, unlike in the private sector, it is impossible to reduce all public services to a common denominator, the group said.
“In the private sector every decision can be reduced, in principle at least, to a calculation of the net present value (NPV) to shareholders of the cashflows associated with investments, changes of product, and changes of process.
“In government, it is not so easy: the monetary value of many of the goods and services produced can’t really be calculated and, in any event, the distribution of those benefits (or changes of those benefits) is at least as important as their absolute value.”
“The challenge is real, therefore, but, in a context in which the quantity and quality of public services is believed to be falling even as the cost of providing them is rising, the potential value to society of doing a ‘good-enough’ productivity review is potentially enormous,” it said.