When I wrote last week that General Surprise, the new communications minister, would likely go in all guns blazing, I didn't quite expect the bang we got just a day later.
Over the weekend, the regulator, ICASA, and trade union federation Cosatu, made an urgent application to the high court to prevent the sale of Vodacom shares by Telkom to Vodafone. Thankfully, it failed. Had it succeeded, this week's listing of Vodacom on the JSE would have been derailed, and the liberalisation of the telecoms market would have been dealt a heavy blow.
The last-minute legal challenge was met with near-universal condemnation. Investors took fright, the rand plummeted, and commentators in the media expressed shock and horror.
I'll grant that the belated about-turn by ICASA on whether the sale required its approval was hamfisted, and amounted to an amazing show of weakness. It scuttled any confidence one might have had in its independence, and undermines certainty in its future decisions. It bodes ill for the sector that it rolled over so readily when the general's cavalry blew the bugles.
But Cosatu has a point, you know.
Besides its ideological objections to foreign-owned assets, its primary concern, one surmises, is the potential for job losses that might result from the sale and the listing. Private owners have this annoying habit of demanding full value for the money spent on labour.
That concern, ordinarily, would be easy to dismiss, since it betrays an elementary misunderstanding of economics.
If a company employs people in unproductive jobs, it is better for the economy that those jobs are made redundant, so that both the capital and the labour involved can be employed more profitably in more productive activities. For every unproductive job lost, one or more productive jobs would be created elsewhere in the economy. Besides net growth in employment in the market overall, and profit growth at the companies that improve their operations, the result would be a better deal for consumers. This is how the free market capitalist system works naturally to achieve the goal of economic activity: not to create jobs for the sake of jobs, but to effectively provide the needs and wants of society's members, in the most efficient manner possible, to the benefit of all.
Because there are only three mobile operators and two fixed-line licensees, the scope for new jobs to be created is severely limited.
Ivo Vegter, contributor, ITWeb
However, our telecoms market doesn't work that way. It has never been a free market, after all. Because there are only three mobile operators and two fixed-line licensees, the scope for new jobs to be created is severely limited. If workers do get laid off, many would find themselves stranded, unable to move from a company that employs too much labour to one that could better use the extra workforce. Restrictive licensing rules and historical limits on the number of licences in issue make it harder than it otherwise would have been for new competition to emerge. As a result, the natural market growth that in a free country mops up excess labour liquidity is limited or non-existent in South Africa.
The government, by deliberate policy, has created this shackled cartel. As with all monopolistic sectors in which incumbents are protected by the state and new competition cannot freely arise, the result is that the natural regulation ordinarily provided by the rigours of a competitive market must be replaced with mechanistic regulation provided by a legally empowered bureaucracy.
In this environment, it is hard to tell Cosatu that it is wrong about the threat of job losses. If the market were free, one could legitimately accuse it of wearing ideological blinkers. One could charge that it seeks an inefficient economy, run along discredited socialist lines, in the hope that this adversarial position will benefit the special interests that labour unions represent, at the cost of the rest of society, both capital owners and consumers. One could note that its own constituents are consumers (and often capital owners) themselves, so its argument contradicts itself.
However, the government's short-sighted policy of restricting free competition by limiting the availability of licences, combined with its historic involvement in the sector as owners of capital, makes it a lot harder to support this argument.
This means Cosatu has a valid point. Its bold legal action is to be expected. The government is merely reaping the fruits of the misguided policies of the past. If it had liberalised the telecoms sector when it had the chance to do so 15 years ago, it wouldn't have faced this problem.
If the market is not free to function, it cannot replace unproductive jobs with productive alternatives. In a socialist state, protecting unproductive jobs by regulatory intervention is indeed a legitimate function of the state.
Get used to it.
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