Introduction

In this introduction to our book, Inclusive Dualism, we revisit W. Arthur Lewis’s famous model of development with surplus labour. Lewis emphasized the benefits of dualism, by which he meant economic differentiation and the coexistence of sectors (and of firms within sectors) characterized by different levels of productivity and wages. He proposed an expansion of relatively low-wage, labour-intensive jobs that would raise productivity by drawing ‘surplus’ labour out of subsistence activities. When such surplus labour dried up, wages would rise. In contrast to Lewis, post-2000 advocates of decent work fundamentalism promote wage increases as an instrument to increase labour productivity irrespective of labour market conditions. In the presence of surplus labour, this can have dystopic consequences, as the South African case shows. In South Africa, with its very high unemployment rates, strategies to promote relatively high-wage, high-productivity jobs came at the cost of labour-intensive development and even job destruction, thereby exacerbating poverty and inequality.

Conclusion

Chapter 8 considers the challenge of moving towards inclusive dualism for surplus labour countries. In such countries, decent work fundamentalism threatens to perpetuate or worsen poverty and inequality. As the extreme case of South Africa’s clothing manufacturing sector shows, decent work fundamentalism not only impedes job creation but it also destroys jobs. Decent work fundamentalism is a threat not just across Southern Africa and in other parts of the world where open unemployment is very high. It is also a threat across much of Africa, where unemployment rates have already risen and are predicted to continue to rise, especially amongst young people. Given the rapid growth of the labour force and the inability of agriculture to absorb more workers, most African countries need to expand urgently non-agricultural employment in labour-intensive sectors (including clothing manufacturing). Strengthening the safety net of social protection (through cash transfers and public works programmes) can mitigate poverty, but is unlikely to be any substitute for labour-intensive development.

Trajectories of Development and the Global Clothing Industry

Chapter 4 provides a history and analysis of development trajectories in the global clothing industry. Trade liberalization (specifically the end of import quotas from January 2005) and the rise of global value chains have changed the nature of the global economy since Lewis’s time. We use UNIDO data on remuneration, output, and employment to identify post-2004 national development trajectories showing that upgrading trajectories can be pro-labour (a rising wage share of value-added) or pro-capital (a rising profit share). Pro-labour trajectories can deliver rising average wages and employment (e.g. India and China) or higher average wages for fewer workers (e.g. Sri Lanka). Pro-capital trajectories can also deliver higher average wages and employment growth (e.g. Vietnam) or rising wages for fewer workers (e.g. South Africa). Downgrading trajectories are typically associated with falling average wages but can be associated with rising average wages (as in Turkey). The desirability of a particular development trajectory depends on the economic context, especially labour market conditions.

Labour Productivity and Employment in Surplus Labour Countries

Chapter 3 argues that the ILO’s decent work agenda is insensitive to the needs of countries with high unemployment. We identify thirteen developing countries whose unemployment rate in 2016 was over twice the mean for low- and middle-income countries. Most are war-torn, post-communist, and unfree. However, for a set of Southern African countries, high unemployment is the consequence of domestic policy within a regional context of relatively limited opportunities for smallholder agriculture and dominated by the strength of the South African economy. Contemporary development policy advice, especially from the ILO, prioritizes labour productivity growth without confronting the need to foster relatively low-productivity employment to provide jobs for large numbers of relatively unskilled people in these countries. Rising labour productivity in the surplus labour countries during the 2000s came at the cost of stagnant, and even falling, employment rates. Given inadequate welfare support for the unemployed, such growth paths undermined inclusive development in these countries.

The Moral Economy of Low-Wage Work

Chapter 5 considers the debate over ‘sweatshops’ in the clothing manufacturing industry, arguing that the moral economy of rival positions entails different understandings of the relationship between wages, profits, and employment. Many contemporary arguments reflect those made over a century earlier in Britain and the US. However, whereas the British Fabian socialists sought (and achieved) the simultaneous expansion of labour protection and welfare support for the unemployed, the contemporary anti-sweatshop movement focusses solely on wages. By the early twentieth century in Britain, those who lost their jobs because of rising minimum wages could expect support from the welfare system. In twenty-first-century surplus labour countries, the unemployed fall through what meagre welfare nets exist. In this context, the potential trade-off between wages and employment matters for poverty and inequality. Chapter 5 also reviews the evidence on the impact of rising minimum wages on employment both internationally and in South Africa. The impact is typically neutral or mildly negative, suggesting that policymakers are generally careful about not raising minimum wages excessively. There is, however, evidence that it is mostly unskilled workers who lose jobs when job losses occur.

Dualism and Development

Chapter 2 discusses the Lewis model of development with surplus labour and the ongoing relevance of his dualist approach as demonstrated in the industrialization of Hong Kong, India, Bangladesh, etc. We show, using examples from the South African clothing manufacturing industry, that relatively high- and low-wage firms exist in the same industry by using different technologies and targeting different product markets. There is no necessary ‘race to the bottom’. Industrial policy can usefully promote competitiveness across a range of technologies, supporting labour-intensive technologies (especially in contexts of high unemployment) without undermining firms in more skill- and capital-intensive niches. The chapter concludes with a discussion of the implications of unemployment for development strategy, and for the relationship between development and inequality.

The Political Economy of Upgrading

Chapter 7 argues that the Southern African Clothing and Textile Workers Union (SACTWU) strategy was complicated by its dual role as a trade union and investment manager. Having taken advantage of investment opportunities provided through ‘black economic empowerment policies’ to grow substantial financial assets and later also direct investments in the clothing manufacturing industry, the union, in effect, was both a representative of labour as well as a capitalist. Its political connections meant that it was well positioned to take advantage of subsidies. The incentives and opportunities facing SACTWU were consistent with a union strategy to have a smaller body of better-paid workers rather than growing its membership of lower-wage workers through labour-intensive job creation. SACTWU is suspicious of the growth of workers’ co-operatives (seeing them as sham and designed solely to avoid minimum wage regulation). We argue that the potential for workers’ co-operatives to generate more transparent and inclusive productive and distributional practices is exciting and consistent with inclusive dualism.

Decent Work Fundamentalism and Job Destruction in the South African Clothing Manufacturing Industry

Chapter 6 reviews the history of collective bargaining in the South African clothing manufacturing industry. We show that its profoundly dualist character (high- and low-productivity firms co-existing) has historical and market-related roots and highlight the role of wage policy during and after apartheid in shaping the regional location of firms. The rise of China as a global producer of clothing had a profound impact on the South African industry—but it was the simultaneous introduction of national collective bargaining and the enforcement of minimum wages on relatively low-wage labour-intensive firms that drove the job losses. We describe the 2010/11 ‘compliance drive’ that resulted in legal action against the National Bargaining Council for the Clothing Manufacturing Industry by low-wage employers, including the Chinese firms (that is, owned by people who originated from Taiwan, Hong Kong, or China) in Newcastle seeking to obtain relief from the imposition of sector-wide minimum wages on their labour-intensive firms. Whilst trade union strategy as well as government policy adapted to some extent and many employers transformed their enterprises into workers’ co-operatives, that is to circumvent wage regulation, the outcome was nonetheless the preclusion of employment growth in this crucial sector.