231. This chapter examines, firstly, the broad principles underlying the Commission's approach to productivity enhancement. The examination is situated within a brief discussion of the local context ­ the major determinants and constraints currently acting upon productivity advance in South Africa.

232. The chapter then goes on to discuss specific institutions and policies, which are broadly within the domain of the labour market, and which impact upon productivity enhancement.

Principles and Context

233. The Commission is required to give consideration to the factors that currently impede productivity and to propose a framework which would more effectively promote productivity. The relevant section of the Commission's terms of reference which are addressed in this chapter are:
     • the role of national economic policy and national institutions in productivity enhancement; in particular,

     • building a national productivity accord,

     • identifying national policy initiatives that encourage the adoption of productivity-enhancing work organisation, and

     • examining the relationship between industrial relations systems and practices and productivity. In particular, the Commission will identify labour relations and labour market-related impediments to technological progress and new forms of work organisation.

234. In the longer term, increasing productivity (and investment) is the principal factor underlying wealth creation for the nation, increasing income and achieving a better quality of working life. At the national level, more productive economies are more competitive economies. At the micro level, more productive firms are able to achieve higher returns and increased capacity to invest. Because of its centrality to longer term social and economic objectives, productivity enhancement is a legitimate area for public concern and policy. Certainly, the high performing economies of the East have explicitly made productivity enhancement a central objective of government policy.

235. As already outlined, open capital and product markets induce policymakers to focus on strengthening the supply side of the economy, on enhancing efficiency in the use of domestic resources. Evidence to the Commission confirms this pattern for South Africa. The opening up of the South African economy leading to enhanced competition on both domestic and international markets is the major factor currently spurring firms to re-examine their performance, and to accelerate programmes designed to enhance productivity and to introduce new forms of work organisation. Proposed changes to competition and ownership policies designed to raise the competitive temperature among domestic firms are a further incentive to firms to raise productivity. Submissions to the Commission confirm that firms have become far more conscious of the need to raise productivity and there is something of a "sea-change" in attitude to productivity on the part of management.

236. However, in Chapter 3, the complex relationship between productivity enhancement and employment is outlined and must be re-emphasised. The overriding imperative is to increase the productivity of scarce inputs. In South African circumstances then, policy should encourage the intensive utilisation of capital and skilled labour and the extensive deployment of the abundant factor, unskilled labour. This approach will certainly condition sectoral strategy and it will also encourage the adoption of more labour-intensive techniques of production.

237. But this does not mean that the efficiency with which labour is deployed is unimportant. Far from it. Globalised markets demand that all inputs in the production process be utilised at optimum levels of efficiency. Moreover, globalisation frequently constrains technology choice, sometimes requiring that firms operate with the most advanced, capital-intensive technologies available.

238. This suggests an incompatibility between labour productivity enhancement and job creation. Moreover, concrete workplace experience frequently confirms this negative correlation and underlies the widespread antipathy of middle managers, workers and unions for productivity enhancement. Submissions to the Commission from firms and employer associations in the mining, manufacturing and services sectors have confirmed that the initiation of significant new productivity-enhancing measures ­ in work organisation, or in the introduction of new technologies - are generally accompanied by significant employment loss, or "downsizing" in current corporate-speak.

239. However, there is no necessary association between increased productivity, even labour productivity, and job destruction. As long as output increases more rapidly than productivity, employment levels will be maintained or increased. Thus increasing demand - from domestic markets or exports ­ is a vital accompaniment to productivity increases. Of crucial significance here is the distribution of gains from the productivity increases between wages, prices and profits. Relative price decreases permit increases in market share; profit increases provide the wherewithal for investment in new capacity. Wage increases also impact positively on aggregate demand and, more important, they are the basis of worker support for productivity enhancement. We will return to these issues in Chapter 10 of the Report.

240. It remains nevertheless true that particular productivity-enhancing initiatives are less threatening to employment in the short run than others. Measures to increase capital productivity fall into this category; technological change that focuses on new product development rather than process-related innovation often also falls into this category. This will be discussed later in the chapter.

241. While productivity advance finds its principal expression in more productive and effective enterprises, productivity is much more than simply an expression of the internal efficiency of the enterprise. It is invariably a social process with social constraints and incentives. In many countries, productivity advance cannot be secured without substantive structural, market and behavioural reform. A policy framework for productivity enhancement needs to take account of the social and cultural environment as well as more specifically economic factors. The determinants of productivity are many and varied.

242. The Commission heard evidence from a number of firms and sectoral associations which are currently very active in productivity enhancement. The Commission also heard evidence from the National Productivity Institute drawing on its experience as to the determinants of productivity advance and had access to a number of micro-studies of firms which are undergoing major attempts to raise the productivity of their own organisations.

243. A large number of impediments to productivity enhancement were identified, some of which are endogenous to the firm while others are exogenous. With few exceptions ­ outlined below ­ the evidence was that the principal impediments to productivity enhancement lay outside of the regulations and legal framework that currently govern the labour market. Where competition has been pronounced, such as in commercial banking, productivity performance at the level of the firm has been good and firms have been quick to introduce new technology and new forms of work organisation. Even in sectors which have performed poorly, some firms which are highly innovative and are managing to secure significant and ongoing productivity advance have been identified. Apart from legislation which restricted working hours in the mining industry, the National Productivity Institute could identify no major constraining factors which resulted from any legislation. The key constraints were seen by the NPI as "more attitudinal".

244. A number of studies of South African firms have suggested that a critical impediment to enhancing productivity at the level of the firm frequently lies, not within the firms themselves but rather arises from the relationship of firms to their external environment. Inter alia, weak vertical relationships with suppliers and consumers, weak horizontal relationships with other firms within the same industry, weak relationships with tertiary education institutions and the science councils, all severely retard the performance of South African firms and restrain productivity increases and the introduction of more effective forms of work organisation.

245. It is proposed that improving the relationship between firms and their external environment be a principal thrust of industrial policy. South African firms that seek to raise their productivity also face a number of constraints that arise from within the firm itself ­ a view that is shared by the ILO Review. At the level of the firm, the major constraints to productivity enhancement, are firstly those relating to the capacities of management and of the workforce. A general lack of education and training of the workforce impacts negatively on skill acquisition. A lack of management skills in leadership, mentoring, work reorganisation and decision making abilities; and a lack of capacity amongst both management and union representatives on inter alia, issues relating to modern manufacturing methods are further constraints.

246. There are also major constraints relating to the manner in which production is organised within South African firms and, in particular, the relations between management and the workforce. The Commission has identified the following elements in this regard: authoritarian and racist supervision of the shop-floor; an adversarial/hostile relationship between management and unions at the shop-floor; a general absence of workplace democracy and inadequate worker participation structures; poor identification of the workforce with issues of productivity; and volatile industrial relations.

247. In the longer term, capacities can only be increased through education and training. In the short term though, making more effective usage of existing capacities is key and there is much evidence to the effect that current capacities are poorly utilised. Labour market policies, particularly those relating to training, skill recognition, job grading and appropriate incentive and reward systems are significant in this regard and are addressed elsewhere in this Report. While work organisation is ultimately a firm-level and firm-specific matter, public policy, in particular the regulation of labour relations, is influential and is discussed later in this chapter.

248. We should, however, note considerable progress towards overcoming some of these internal impediments to productivity enhancement, in particular those emanating from employer/employee relations. The level of industrial action ­ particularly in the private sector ­ has declined markedly over the past two years; the dispute-resolving mechanisms of the Labour Relations Act should reinforce this trend. The Workplace Forums are specifically designed to underpin workplace democracy and worker participation and to strengthen the identification of all layers of the workforce with productivity issues.

249. To reiterate, the submissions to the Commission and other studies have identified few major existing regulations and laws which significantly retard the advance of labour productivity.

250. None of the submissions to the Commission saw the terms of the Basic Conditions of Employment Act (BCEA) or indeed the Wage Act, as being onerous or restrictive in terms of productivity advance. This is confirmed by the manufacturers responding to the South African Enterprise Labour Flexibility Survey (SALFS) analysed in the ILO Review. Some concern was expressed that new modes of working were rapidly evolving, for example in the banking sector, and that these may conflict with the inflexible organisation of working hours as laid down in the BCEA. These fears would, however, be adequately addressed by the flexible working time arrangements proposed in the Green Paper on Employment Standards.

251. Critical reference was also made in some submissions to aspects of the Industrial Council system which were identified as excessively cumbersome and bureaucratic. It was argued that Industrial Councils were too distant from the shop floor to impact positively upon productivity with its inevitably micro focus and character. Again the introduction, through the Labour Relations Act, of Workplace Forums is designed to strengthen the system by providing statutory, institutional support to productivity enhancement at the firm level.

252. In summary, productivity is effected at the level of the enterprise. Incentives to increase productivity depend principally upon competitive pressures. South African firms responding to such pressures face certain constraints. Some of these are exogenous to the firm and are to be addressed principally through industrial policy. Those factors that are endogenous to the firm relate firstly to capacities and secondly to the way in which production relations are organised. While productivity advance and new forms of more productive work organisation are effected at the firm level, labour market policies have some impact upon this process.

253. The existence of adversarial relations on the shop floor is widespread and, as stated above, is seen to be a major impediment to productivity advance. In many countries the "solution" to this problem has been to reinforce managerial prerogatives at the expense of the rights of workers.

254. In South Africa, government is committed to a very different route. A more co-operative approach with clearly defined rights and obligations for both workers and management is enshrined in legislation ­ particularly in the new LRA.

255. While this approach has been adopted because of its compatibility with the norms and values of the government, the Commission is also convinced that in the long-term this system will facilitate productivity enhancement far more effectively than any system that emphasises one side of the work divide at the expense of the other. Increasingly, prevailing international best practice requires the active and willing participation of all of the firms' employees and this is best secured via more co-operative arrangements.

256. A co-operative approach to productivity requires both the participation of and the sharing in gains of all elements of the workforce and management. Productivity enhancement must be recognised as the source of increased income and therefore a principal and a common tripartite objective. This co-operative and tripartite approach to productivity conditions all of the Commission's recommendations with respect to productivity enhancement.

Institutions and Policies

257. The remainder of this chapter examines a number of labour market related institutions and policies designed to enhance productivity. In particular, the Commission has examined:
     • the role of the National Productivity Institute;

     • a National Productivity Campaign;

     • institutional co-ordination of government policy with respect to productivity;

     • the impact of the Labour Relations Act and, in particular, Workplace Forums;

     • government policies to promote innovation;

     • the impact of employment standards;

     • the introduction of multiple-shifts; and

     • the introduction of "best practice" production methods.

The Role of the National Productivity Institute

258. The critical importance of productivity enhancement as a major objective for public policy has been underlined. A number of countries have accordingly established dedicated national productivity organisations. In the current context where the exposure of South African firms to foreign competition is rapidly accelerating, where existing forms of work organisation require major restructuring and where ignorance and indeed outright hostility to productivity enhancement is widespread, a dedicated, publicly funded national productivity organisation is supported by the Commission. The Commission is persuaded that the international experience ­ including developing country experience ­ of these institutions support this viewpoint.

259. The South African NPI was established in 1968. It immediately opted for a micro and sectoral focus, undertaking a large number of national surveys utilising considerable firm level data. Eventually productivity units were formed for many of the industries surveyed. Training and education and the promotion of productivity awareness were added later to the activities of the NPI. A principal organisational result of this initial focus is that the Consulting Services Division is the largest division within the NPI.

260. The NPI does very considerable consulting both to private companies and also (though less often) to government departments and parastatal bodies. About half of all its personnel (other than those engaged in administration of the organisation) are engaged in the NPI's consulting services division. The consulting services division accounts for about half of all non-administration expenditures. In addition, much of the smaller strategic management division of the NPI is, in effect, concerned with consulting to private clients.

261. According to the NPI's submission to the Commission, the organisation operates in the consulting market like any other private consultancy. The NPI proactively seeks customers and always charges the full market rate. According to the NPI, its consultancy division is "financially independent and generates its own resources". However, cognisant of government's commitment to employment enhancement and other objectives and consistent with its mission statement, the NPI claims also to adopt a much more socially responsible and humane approach than that of many private consultants especially in relation to possible employment loss. This was expressed to the Commission in the following terms "... unlike other consultants we never cut heads". However, the NPI has no formal set of guiding principles which give effect to the safeguarding of employment or any other broad social criteria with regard to its activities in general or its consulting activities in particular.

262. The NPI claim to be different from private consultancies and to operate in a more socially responsible manner was disputed in some of the submissions made to the Commission. Certainly it appears that workers and the trade unions generally perceive the NPI to be "on the side of management" with little difference from many other consultancies in this regard. This perception will persist so long as the NPI is generally engaged by management and lacks a clear and explicit statement of principles that enshrines a more socially responsible approach to guide its consulting activities.

263. In so far as the NPI is a recipient of public funds and is therefore accountable to government, its mandate should be elaborated so as to be reflective of the major principles that determine the government's approach to the enhancement of productivity. Government will necessarily enact various measures designed to enhance productivity which will embody these principles and the mandate of the NPI should be consistent with the approach adopted by the government. As already elaborated, enhanced shop floor co-operation and tripartite governance characterises the basic thrust of government's approach to productivity enhancement. Employment creation is a fundamental objective of government. These approaches and imperatives should be reflected in the approach and activities of the NPI. The Commission would commend the guiding principles of the Japanese Productivity Centre to the NPI. These are worth quoting in full:

     1. In the long run, improvement in productivity will increase employment. However, during the transition, before the full effects of improved productivity become apparent, the government and the people, in order to minimise temporary frictions which may disturb the national economy, must co-operate to provide suitable measures, such as the transferring of surplus workers to areas where needed, in order to prevent unemployment.
     

     2. In developing concrete measures to increase productivity, labour and management, conforming to conditions existing in respective enterprises, must co-operate in discussing, studying and deliberating on such measures.
     

     3. The fruits of improved productivity must, in correspondence with the conditions of the national economy, be distributed fairly among management, labour, and consumers.
     
     

264. Government's tripartite approach to productivity enhancement should find expression in the governance of the NPI. The Productivity Advisory Council (PAC), which lays down the broad policy of the NPI, has generally had many more members drawn from organised business than members drawn from organised labour. The NPI executive is responsible to a board of directors elected from the PAC. This body also has had far stronger representation from organised business than organised labour. The Commission proposal is that a governing board be established and constituted so as to ensure equal representation of employer organisations, employee organisations and government. The governing board's task would be to ensure that tripartite and co-operative principles underpin the activities of the NPI.

265. With respect to the major activities of the NPI the Commission recommends as follows:

     Consulting

     • The significance to the NPI of its consulting activities and the organisation's rationale for such activity have been outlined above. In the view of the Commission, there are many effective consultancy firms in South Africa, many with international connections. There appears therefore to be no distinctive reason why a publicly supported and funded body should be operative in what is clearly a well-functioning and competitive market for consultancy services. The Commission is unconvinced by the argument advanced by the NPI that competing in the private consulting market is necessary in order to acquire detailed understanding of productivity issues. A number of successful NPCs elsewhere do not participate in consultancy activities. Indeed, the extent of the NPI's consulting activity is very unusual. The Commission's proposal is that the NPI should not compete in the market with private consultancy organisations.

     • In accordance with the above proposal, the NPI would be precluded from undertaking work of a purely private nature, on behalf of either employers or employees. However, where the parties have identified a problem and are committed to a common approach to productivity, the NPI would, if the other proposals suggested by the Commission are implemented, be in a position to offer its services as an organisation which would have legitimacy as a tripartite governed institution operating according to co-operative tripartite principles (see above). The NPI would therefore be committed to and experienced in developing a consultative and collective approach to productivity enhancement and the distribution of its benefits.

     • This is likely to be particularly germane where government-led programmes for productivity enhancement are implemented. For example, where resources are to be allocated to a particular sector through a series of supply-side measures, government will want to be assured that there is a concrete plan and commitment to raise productivity on the part of all parties and will want the impact of any support to be monitored and evaluated. An organisation that commanded the legitimacy of both management and the workforce could arguably be more effective here than a private consultancy. Similarly, IDC and other industrial development loans may require demonstrated commitment on behalf of all parties to engage in a productivity-enhancing strategy ­ and the NPI with its tripartite governance and commitment to a genuinely consultative process might be better placed to effect this than a private consultancy.

     • The NPI should also be urged to undertake work with SMMEs, given the latter's potential importance to both economic growth and employment generation. SMMEs generally lack the financial and human capital required to pursue directed and ongoing measures designed to enhance productivity within the firm. In this regard, particular emphasis should be placed within a reconstituted NPI on prioritising support for productivity enhancement amongst SMMEs.

     Generation and Dissemination of Statistical Information

     • The NPI compiles and disseminates statistics on productivity performance. The NPI, in fact, does not itself collect these statistics. It derives them from elsewhere (generally the CSS). There seems no clear reason why the NPI should be responsible for this activity. Indeed, given that measures of productivity and the interpretation of productivity performance are highly contentious issues, it is essential that this be conducted by an organisation which itself has no stake in the result. As a productivity advocacy organisation, the NPI does not fulfil this criterion. When presented with this view, the NPI itself concurred with this assessment.

     • The Commission's proposal is that responsibility for the acquisition and generation of statistical information on productivity not rest with the NPI. A number of alternative models are possible ­ there may, for example, be a need for a body similar to the United States Bureau for Labour Statistics (BLS) with a close relationship with the CSS. This decision will be strongly contingent on the institutional design for the collection, dissemination and analysis of labour statistics, which should include statistical material on productivity. We concur with the recommendation in the ILO Review that an integrated labour market information system be developed, using the establishment of a Labour Market Statistics Co-ordinating Committee as a first step in fostering this integration.

     Training and Education

     • The training and education division of the NPI undertakes a variety of programmes. They include training programmes for workers, supervisors, management and even teachers. At least some of these training programmes would appear to be in competition with training programmes offered in the private sector. As with the NPI's consultancy activities, the advisability of public funding for these programmes is questionable. Our recommendation here is identical to that made with respect to the NPI's consultancy activities: the NPI should be precluded from undertaking work of a purely private nature, but should be available for bi- or tripartite activities in education and training. In addition, where necessary, the NPI should liaise closely with the Industry Training Boards in the provision of education and training needs.

     Productivity Awareness

     • The productivity awareness division of the NPI promotes better public understanding and appreciation of the importance of productivity. This includes inter alia productivity awards, and publications on productivity. The NPI has argued that productivity promotion should be strengthened through a national campaign which will be undertaken by the NPI. Apart from doubts as to whether such a campaign is indeed merited (see below), in the view of the Commission there is no clear reason why this should be orchestrated by the NPI. It is likely to be more effective if it is the responsibility of some higher-level tripartite body ­ possibly NEDLAC. The NPI's role should be to promote productivity awareness on an ongoing basis.

266. If these recommendation are accepted, the implications for the scale and composition of government funding of the NPI are considerable. This should be reviewed in tandem with a general review of the role of the NPI.

The Advisability of a National Productivity Campaign

267. The Commission is of the view that:
     • productivity enhancement is, particularly at this juncture, an important national objective;

     • there is very limited awareness of, and indeed quite widespread opposition to, productivity issues;

     • a growing number of countries, particularly in East Asia, have launched national productivity campaigns. While empirical measurement is difficult, such campaigns have often appeared to have been quite successful.

268. This would seem to suggest a prima facie case for a high profile national campaign to be launched in South Africa in order to increase both awareness and acceptance of productivity issues. As indicated above, this is the view of the NPI. The now defunct National Manpower Commission called for a productivity awareness campaign "on the same level and to the same extent as the Voter Education Programme".

269. However, there have been no studies as to how successful such a campaign might be in South Africa and the Commission has not been able to develop a firm view in this regard. The Commission proposes that the possibility of a high-level national productivity campaign be investigated. If it is decided that such a campaign would be advantageous, various key targeted audiences should be identified and the campaign tailored to meet their distinctive concerns. The campaign would need to have the clear support of the highest levels of government. The campaign should not be a substitute for the ongoing promotion of productivity awareness.

Institutional Co-ordination of Government Policies

270. The central importance of productivity as a national policy objective has been underlined. This is not currently being reflected within government policy-making bodies. Policy is being made, in a variety of areas, with little or no consideration of the potential impacts that such policy changes may have upon productivity.

271. In the rapidly growing countries of East Asia, concern with productivity is effected at the highest levels of government. The example of Japan is possibly instructive here. In Japan the Productivity Liaison Council (PLC) deliberates on and determines policies for productivity enhancement. The Japan Productivity Centre's president is chairperson of the PLC, which is composed of 12 vice-ministers from 12 government departments.

272. The Commission proposes that government investigates the establishment of institutional co-ordination at a high level in order to propose policies to promote productivity enhancement and to ensure that government policies in general are consonant with productivity enhancement. A transformed NPI should constitute the secretariat of this co-ordinating body.

The Labour Relations Act and the Workplace Forum

273. The Workplace Forum is intended to replace confrontational bargaining with "joint problem solving and participation on certain matters". The forums ensure workers "an institutionalised voice in managerial decision making". The underlying rationale is that productivity advance and other issues of mutual concern to workers and management can best be secured through the co-operation of workers and management. Thus the explanatory memorandum to the LRA states:

     In South Africa, a co-operative effort is needed now, as never before. As we enter new economic markets and face demands for restructuring, flexibility is crucial. To ensure that this flexibility is not achieved at the expense of workers' rights and job security, structures are necessary to facilitate communication and co-operation between management and labour on production-related matters, more or less free of distributive conflict over wages.

274. The Workplace Forum requires that the employer engages in
     • information sharing ­ the employer must present reports for discussion on past and predicted performance;

     • consultation ­ the right of employees to be consulted on certain matters, including workplace restructuring including the introduction of new technology and new forms of work organisation; and

     • joint decision-making ­ secures the consent of the forum before it can implement certain proposals.

275. The Workplace Forum concept embodies three principal features in relation to productivity enhancement:
     • Productivity enhancement is plant specific. Workplace forums are established at the level of the plant and the parties are encouraged to design their own structures for the operations of the forum.

     • Productivity advance is ultimately most effectively secured through co-operation between all parties. This is effected via information sharing, consultation and joint decision-making.

     • Productivity enhancement and wage bargaining should be institutionally separated. The Workplace Forums and collective bargaining arrangements are separate and all employees are represented in the structures of the Workplace Forum.

276. The Commission views the principles embodied in the Workplace Forum as sound. They are consonant with the co-operative approach to productivity enhancement that government has endorsed and with international best practice. They complement the approach to flexibility in the application of regulations and standards proposed in the Green Paper on Employment Standards. Several submissions viewed the divide between productivity enhancement and wage bargaining as unrealistic. The Commission shares this scepticism. The ILO Review also notes the lack of attention paid to productivity issues in most wage agreements. Effective discussion of productivity enhancement must inevitably involve a remuneration aspect. In the Commission's view negotiating the basic wage and standards in the agreed collective bargaining arrangement is perfectly consistent with discussing productivity enhancement and the incremental rewards that attach to it through the Workplace Forum.

277. Under the LRA, Workplace Forums can only be established at the instigation of a representative trade union and only in workplaces where there are 100 or more employees. Both stipulations restrict the operation of a Workplace Forum and leave many enterprises without a clear institutional mechanism to encourage a collective approach to productivity advancement and the introduction of new technology. The Commission appreciates, against the background of past industrial relations practices and structures in this country, the cautious approach of the unions to the Workplace Forums and, accordingly, their insistence that a representative union be the sole trigger for their establishment. However, the Commission urges the Department of Labour and the Commission for Conciliation Mediation and Arbitration (CCMA) to facilitate their establishment. If and when union and employee suspicion of these institutions has been allayed the LRA should be reviewed in order to expedite their establishment, and to foster these institutions in smaller establishments.

278. The LRA stipulates that bargaining councils and statutory councils function at the level of the sector. The bargaining councils, established by agreement of both parties, negotiate wages and substantive conditions of service and may elect to negotiate industrial policy matters. While productivity advance and the introduction of new technologies and work practices is principally effected at the level of the enterprise, there are important issues in this regard which are effected at the sectoral level. The Commission recommends that industrial policy matters be included on the mandatory agenda for consultation and discussion in the statutory councils.

Government Policies to Promote Innovation

279. Many governments have policies designed to promote research and development and innovation at the enterprise level. With the growing importance of innovation as a determinant of competitiveness, and the ever more limited scope for other measures to encourage local firms under the GATT, these measures are becoming more widespread and more significant. In South Africa, governmental support for research and development and innovation at the enterprise level, is quite limited. The Support Programme for Industrial Innovation (SPII) is the only programme that gives direct support to enterprise level innovation. The SPII and the support for innovation in general is currently being re-examined by the Department of Trade and Industry.

280. Both product and process innovation spur increases in productivity. However, new product innovations tend to be more labour-demanding while innovations with respect to the production process are more likely to be labour-saving. The SALFS in the ILO Review, for example, reveals that 42.4% of firms that had increased their product range reported an increase in employment, while this figure was only 21.6% for firms that undertook process innovations. Concern for employment is leading the European Union, for example, to re-examine its innovation policies so as to incorporate employment objectives.

281. The Commission proposes that government innovation policies should include job creation as a key objective alongside other market and technological criteria. Product innovations should in general be favoured over process innovations and public financial support should generally not be given to projects which lead to employment reduction.

Employment Standards

282. A Green Paper published by the Department of Labour proposes the enactment of a new Employment Standards Statute (ESS). The Green Paper identifies the following reasons for the introduction of a new standard:
     • Current employment standards are not consistent with other South African labour legislation.

     • The Basic Conditions of Employment Act (BCEA) and the Wage Act (WA) are not consistent with international standards.

     • Two Acts currently regulate employment standards ­ the BCEA and the WA.

     • Many categories of employees are excluded from the BCEA and the WA, while others are not adequately protected.

     • The BCEA's approach to the regulation of working time is rigid and outdated.

     • The BCEA is internally complex, setting a range of different employment standards for different groups of employees.

     • Existing legislation is little understood by most employers and employees and is not user-friendly.

     • Minimum standards under the BCEA and the WA are ineffectively enforced.

     • Existing legislation does not adequately promote collective bargaining nor does it ensure that collective arrangements do not undermine the public interest.

283. Evidence given to the Commission did not suggest that the present Basic Conditions of Employment Act (BCEA) was, in general, a significant factor currently retarding productivity advance. This view is supported by the ILO Review's SALFS. However, this conclusion needs to be substantially qualified:
     • The prohibition on Sunday working in general and the regulation of working hours in the mining industry in particular, were seen as detrimental to productivity enhancement.

     • Particularly within the financial and services sector ­ both of which have been important areas of employment growth ­ employment patterns are evolving which are increasingly coming into conflict with some of the terms (more especially the stipulated length of the working week) of the existing BCEA. These new employment patterns are likely to become more common.

     • There is some evidence to suggest that the application of the current BCEA has led to a significant increase in labour absenteeism.

     • There is international evidence to the effect that many countries are currently redefining employment standards in response to changing forms of social and work organisation and that such changes can impact positively on employment and particularly on productivity.

     • Evidence before the Commission suggested that there were very large and rapidly growing numbers of workers who were not protected under the provision of the existing BCEA. Workers employed by labour-only-contractors within the construction industry are a good example.

284. Thus, because of its potential impact on efficiency, equity, new forms of work organisation and productivity enhancement, the Commission supports the reformulation of the BCEA and the development of a new Employment Standards Statute (ESS). This section of the Report explores the potential impact of the proposed new ESS upon productivity and employment.

285. The promotion of equity in the labour market and especially improvement of the situation of the poorer and more vulnerable workers are directed at alleviating poverty in employment and thus accord with the overall objectives that we have identified. However, it must be recognised that the introduction and strengthening of minimum standards may increase the costs of employment, and may discourage job-creation. Accordingly, the Commission proposes that the reformulation of the Employment Standards Statute should be carefully assessed in terms of its likely impact upon employment and productivity.

286. We should add, however, that we reject the automatic causal link that is frequently drawn between strengthened minimum standards, increases in the cost of employment, and job destruction. For example, improved overtime rates may accelerate the introduction of multiple shifts and lead to an increase in employment, extending minimum standards to part-time work may encourage existing full-time workers ­ a single parent for example ­ to take up part-time employment. There are numerous examples where strengthened minimum standards are both job-creating and productivity-enhancing. By choosing not to work over-time, employed workers can help create new job opportunities in factories where the number of shifts can and does rise as a result. In this respect, COSATU's recent call for an over-time ban (a demand echoed by unemployed worker organisations) is a move in the direction of job sharing.

287. While a number of provisions of the proposed statute will impact directly upon productivity and employment, the most important impact will be secured via regulations governing working hours. The Green Paper proposes a reduction in working hours and the maintenance of earnings.

     The Department proposes that the initial phase of reforming limits on working hours should be to replace the limit of 46 with 45 as the maximum permitted ordinary working hours. This is motivated by the Department's desire to reduce working hours over a period of time and to provide a simpler basis for calculating hours in the context of proposals to achieve greater flexibility. These changes are implemented as part of the objective of achieving a 40 hour week. Two other limits should be set on daily working time. The limit on total working time and on spread-over should be 12 hours . . . (while) no employee may work for more than 9 hours in any work with a particular exposure to health and safety risks or high levels of physical or mental stress.

288. Any reduction in the working week which retains the existing weekly wage must entail an increase in unit labour costs, and hence in an open and competitive market, a reduction in employment, unless this is offset by at least an equivalent increase in productivity.

289. The available empirical evidence does suggest that a decline in the working week should produce some increase in productivity. However, this rise in productivity may not be sufficient to compensate for the decline in the length of the working week. In particular, this may result where one or all of the following characteristics prevail:
     • Other factors, such as skilled labour, land or capital are in fixed supply;

     • The increase in productivity lags the decrease in the working week;

     • The sector relies on high levels of unskilled labour ­ it is difficult to achieve productivity increases in such sectors; and

     • Antagonism prevails in relations between employer and employees ­ productivity advance is likely to be more limited in such circumstances.

290. The four characteristics outlined above are likely to prevail over a wide range of South African industries, particularly in those sectors which are heavily dependent on unskilled labour. The Commission has not been able to form any clear conclusions or to undertake any detailed studies of the likely impact of the proposed changes in working hours on productivity and employment. Hence, while supporting the reform of the ESS, in regard to the proposed reduction of working hours to 40 hours per week, the Commission recommends that (a) this process be effected slowly and incrementally and (b) that, at each stage of the process, the impact upon employment and productivity be carefully monitored before any further reductions are promulgated.

Encouraging the Use of Multiple Shifts

291. The ILO Review has, in its SALFS , documented a small but discernible movement towards two- and three- shift operations in the manufacturing sector. However, by international standards, these practices still remain relatively underdeveloped in South Africa. Measures that promote multi-shifting are to be encouraged ­ the impact of these arrangements on capital productivity and employment creation may be considerable.

292. We are cognisant of the fact that movement towards multi-shifting generally requires additional investment in plants and equipment and, at times, in the design and physical lay-out of the workplace. The IDC has in existence a scheme that provides funding to firms who wish to introduce additional shifts. We would propose an immediate review of this scheme with a view to its strengthening and further promotion.

293. Multi-shifting also has considerable implications for those required to work night and week-end shifts ­ shift work disrupts family and social life and transport arrangements at night and weekends are generally inadequate and often dangerous. For this reason shift work is generally remunerated by the payment of an additional "inconvenience" allowance. The introduction of multiple shifts has to be carefully negotiated between employers and employees with a view to limiting the inconvenience associated with shift work. This further underlines our support for the proposals contained in the recently released Green Paper on Employment Standards that permit, through negotiation, flexibility in the arrangement of working time. This, in our view, is an example of precisely the type of flexible arrangement that is likely to generate increased productivity and earnings and new employment opportunities.

294. While we recognise the necessity to pay a premium for shift work we would strongly caution against extensive requirements for additional remuneration. Indeed we welcome the proposal in the Green Paper on Employment Standards to increase the premium payable in respect of weekday overtime work precisely because it is likely to encourage the introduction of additional shifts ­ there is evidence from the ILO Review and other research that South African workers work unusually high levels of overtime. Increasing both the overtime rate and the shift premium would work against each other. We would go further and recommend that consideration be given to public support for the payment of shift premia and to the additional labour related costs ­ for example, transport ­ associated with multi-shifting. This support could be extended through a revised version of the IDC multi-shift scheme or through the tax system.

'Best-Practice' Production Methods

295. "World class manufacturing" or "international best practice" are omnibus terms that refer to the introduction of modern work methods that have raised the productivity of labour and capital. The varying initiatives referred to under these headings range from substantial changes in the physical layout of the workplace through to deep-seated changes in the very governance of the corporation. Proponents of the introduction of world-class production methods generally caution against the piecemeal introduction of aspects of what is conceived of as an integrated package of measures. Equally, they caution against the simple importation of techniques immensely sensitive to the requirements and peculiarities of the social environment in which they were developed. There is evidence that South African managers are susceptible to both these practices.

296. It is argued that the South African environment is particularly ill-suited to the introduction of modern, participative forms of work organisation. In general these manufacturing methods have been pioneered and successfully adapted in the context of flat management hierarchies and relative small earnings differentials; South African production, as is well known, is characterised by elaborate hierarchies and wide earnings differentials. The SALFS in the ILO Review notes, for example, that there are some 2 700 job titles in the engineering sector. These new work organisation methods are difficult to introduce in the context of relatively adversarial industrial relations and a low level of union commitment to productivity enhancement. The antipathy of unions and their employers to involvement in productivity-enhancing programmes was graphically represented in the submission by Numsa. Most daunting, modern manufacturing has taken root in societies where levels of basic education are high ­ South Africa's shortcomings in this area are legendary.

297. Nevertheless, these obstacles notwithstanding, the Commission believes that the returns to the introduction of international best practice manufacturing are considerable. They enhance penetration into rapidly growing international markets and, where introduced in co-operation with strong union representation, provide for a substantially improved work environment. We are also encouraged by the success enjoyed by selected South African firms in introducing world-class manufacturing methods.

298. That having been said, it is difficult to specify a clear role for public policy in encouraging and facilitating the introduction of new work methods. In general our emphasis - elaborated above ­ on human resource development and adult basic education in particular will support the introduction of modern manufacturing methods. Regrading initiatives will impact significantly on workplace hierarchies and, ultimately, earnings differentials. Grading exercises are, however, best conducted between employers and employees and there is little discernible role for the state in influencing their outcomes.

299. Public policy may facilitate the introduction of modern production methods by subsidising the use of expert consultancy services. This should be further investigated. Any subsidy should be accompanied by a requirement that the firm so subsidised permits its plant to be used as a role model for other firms ­ this should extend to opening its plant and work methods to inspection by other firms.

300. One of the measures favoured by European governments in respect of a number of policy initiatives is to rely on the dissemination of best practice. This is typically done through identifying different role or demonstration models in different sectors, teasing out the common elements of such best practice and disseminating both the practical examples and the generic principles more widely. This can be done by a combination of publications, seminars, videos and so on. There is evidence to the effect that, in South Africa, particularly within manufacturing, there is a large "productivity gulf" separating best practice national firms from their local counterparts. Considerable gains are to be had from bridging this gulf. A role here for a reconstituted NPI should be investigated. The tripartite governance of the NPI may make it particularly suited to the introduction of modern production methods, the success of which require considerable co-operation and broad ownership by all stakeholders in the workplace. The public character of the NPI may also strengthen the demonstration potential of introducing these practices into individual workplaces. In other countries best practice awards have been used successfully as a mechanism for diffusing best practice and a role for the NPI in this type of campaign should be considered.

301. The LRA provision enabling the establishment of Workplace Forums is the most important labour market policy intervention designed to facilitate the introduction of modern manufacturing methods. This underlines our support for the rapid diffusion of Workplace Forums.

302. Unions and workers are suspicious and fearful of the introduction of modern manufacturing methods and productivity enhancement in general because of their association with job loss. As already noted, the introduction of new workplace practices frequently is accompanied by a significant reduction in employment . Modern workplace methods are then introduced into this "leaner" workplace where the participation of the remaining workforce is built as much upon fear as on genuine acceptance of co-operation. The failure to introduce such modern workplace methods however, will lead ultimately to reduced international competitiveness, and hence stunt the growth of firms. In contrast, embracing new forms of work organisation facilitates global competitiveness which, through expanding the market share of firms, will generate greater employment in the long run.

303. This serves to underline the necessity to approach the introduction of these practices through the institutions of collective bargaining or, better, through the medium of inclusive bodies like the Workplace Forum. It is difficult to envisage that the introduction of significantly new workplace methods would not be accompanied by a revision of payment methods and scales and, for this reason, some combination of Workplace Forum and collective bargaining structure is probably the optimal institutional arrangement for building consensus around the introduction of international best practice.

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