TWO ECONOMIES OR AN ‘UNDERCLASS’?

In his November 2003 address to the National Council of Provinces, President Mbeki characterized South Africa as having two economies. The first is the modern and productive formal economy:

The structural disconnection is key to understanding the two economies discourse, as it purports to explain why the claimed successes of the first economy and of the government's macro-economic policies have not trickled down to the poor: ‘[The “third world economy” is] structurally disconnected from our country's “first world economy”. Accordingly, the interventions we make with regard to this latter economy do not necessarily impact on these areas, the “third world economy”, in a beneficial manner’ (Mbeki Reference Mbeki2003b). In this account, the problem is that those who benefit from development in the first economy are those who are already in the first economy. The notion of a dual economy quickly became central to South African policy discourse (du Toit and Neves Reference du Toit and Neves2007: 145–8) and is probably best paraphrased by Patrick Bond as the idea that ‘poverty can be beat if sturdy (market-focused) ladders are found between the second and first economy, which unfortunately at present are “structurally disconnected”’ (Reference Barchiesi2007: 2).

This ‘remarkably retro’ (Hart Reference Hart and Padayachee2006: 13) theory surfaced at a time that it became increasingly difficult to defend the government's neo-liberal Growth, Employment and Redistribution (GEAR) macro-economic framework, which had replaced the earlier neo-Keynesian Reconstruction and Development Programme (Barchiesi Reference Barchiesi2011: 86).Footnote ¹ This dualist interpretation allowed the government to continue trumpeting the success of its policies in the first economy, as that section of the economy did well, without having to conclude that enduring poverty and inequality exposed the failure of its macro-economic policies (Frye Reference Frye2007). One did not have to question the nature and functioning of the first economy to discuss the misfortunes of the poor in the disconnected second economy.

The idea of a modern and dynamic ‘first world’ economy and an unsophisticated and stagnating ‘third world’ subsistence economy that generates no growth, employment or capital existing side-by-side is reminiscent of modernization theories of the 1950s and 1960s. In such models, two separate economies coexisted in developing countries. Productive, Western-style economies formed ‘nodes of development’ and absorbed labour (and thus population) from the unproductive traditional economies. As the former increasingly replaced the latter, ‘development’ took place (Lewis Reference Lewis1954). The South African government, David Masondo explains, ‘has set as its key role to modernise the “second economy”, integrating the unsophisticated second economy into the first economy’ (Masondo Reference Masondo2007: 73).

The second economy thus comprises those excluded from the modern economy. If social exclusion is what defines the second economy, inclusion must logically be the solution to the problems of South Africa's poor (du Toit Reference du Toit2004). This inclusion can be understood in at least two ways. It could mean the integration of the informal/second into the formal/first economy or the inclusion of the unemployed into the formal workforce. The former problem has been the subject of much literature on the informal economy: how can the poor, informal economy become as dynamic as the formal economy and become an engine of development? Answers vary widely and range from celebration of an entrepreneurial essence to the condemnation of the informal economy as a symptom of all that is wrong with Africa. According to one line of argument, the explanation for the lack of success in the second economy must be internal to this sector, as the formal or first economy is doing well (Neves and du Toit Reference Neves and du Toit2012: 132). The problem of the informal economy is then a cultural and behavioural one (see Maas and Herrington Reference Maas and Herrington2007: 27). In these negative portrayals, the informal economy is ‘associated less with growth than with economic decline and social disorder’ (Meagher Reference Meagher2010: 3) and epitomizes Africans’ cultural inadequacies: clientelism, patrimonialism and criminality (Neves and du Toit Reference Neves and du Toit2012: 132). Such perceptions have often been at the basis of attempts to root out the urban informal sector.

At the other extreme, the informal economy symbolizes the best of entrepreneurial creativity. In this account, the poor are entrepreneurs waiting to flourish in the right economic and political context. This neo-liberal dream is best known through the work of Hernando de Soto (Reference de Soto2000). Poor entrepreneurs just need to be liberated from state intervention and given legal title to their shacks to be able to pull themselves up by the bootstraps.Footnote ² Such approaches to the informal economy have had some influence on South African debates (see, for example, Centre for Development and Enterprise 2006), but arguably laissez-faire has not defined the government's approach to the informal sector. Indeed, the logic of the ANC's writings on the second economy renders a market-based approach to the development of this sector suspect:

As the successes of the first economy do not translate into the structurally disconnected second economy, and because the latter cannot accumulate enough savings to escape its own poverty, direct intervention is deemed necessary (du Toit and Neves Reference du Toit and Neves2007: 148; Frye Reference Frye2007: 183). This shift away from the neo-liberal premises of GEAR came at a time that these policies increasingly strained relations between the ruling party and civil society organizations and within the tripartite alliance, which is the alliance between the ANC, the South African Communist Party, and the Congress of South African Trade Unions (COSATU) (Hart Reference Hart and Padayachee2006: 26). Nevertheless, government policies have been haphazard and often have focused more on helping established small and medium enterprises than on assisting ‘survivalist’ micro-enterprises (Devey et al. Reference Devey, Skinner and Valodia2006a: 13–14; Skinner and Valodia Reference Skinner and Valodia2006; see also Freund Reference Freund2007).

Rather than providing credit, training and other business assistance, Seekings and Nattrass suggest helping South Africa's poor through job creation by ‘expanding the ranks of the working poor’ (2005: 380; see also Nattrass and Seekings Reference Nattrass and Seekings1996, Reference Nattrass and Seekings1997a). For them, the true socio-economic divide in South African society is between those with and those without access to jobs and other income-earning opportunities. Thus the solution to social exclusion is not to integrate the informal economy into the formal sector, but rather to bring those in the underclass into the labour force. Here the poor should not become entrepreneurs, but low-paid labourers. Just like the two economies discourse, however, this idea relies on a dualist interpretation of the South African economy where exclusion is the problem and inclusion must be the solution.

The dualism in their work stems from the assumption that there is an opposition of interests between an unemployed underclass,Footnote ³ on the one hand, and unionized formal sector employees on the other. They argue that those with employment in the formal sector are the privileged few and are invested in pushing for wage increases rather than further employment creation; formal sector workers protect their access to secure and well-paid unionized jobs against incursion by the unemployed masses. They illustrate this opposition of interests with anecdotal evidence of violence that erupted when companies tried to bypass unions for hiring (Seekings and Nattrass: 282). In a section titled ‘Divergent interests? Wage increases versus job creation’, they simply state that ‘it is crucial to note that there may have been a conflict of interest between working people, who seek higher wages, and the unemployed, for whom job creation was more important’ (ibid.: 293).

Their strongest argument relates to the existence of sector-wide bargaining councils. In these councils, trade unions and major employers negotiate minimum wages, which the Minister of Labour can extend to the entire sector. The problem is that ‘bargaining councils were dominated by the relatively large (and better-paying) employers’ and thus that ‘the extension of the minimum wage to smaller, more labour-intensive firms may well have undermined the growth of labour-intensive firms and sectors, thus contributing to the growth of unemployment’ (ibid.: 348; see also Nattrass and Seekings Reference Nattrass, Seekings and Steytler1997b, Reference Nattrass and Seekings2012). Indeed, small employers can be squeezed out by such policies and the issues of bargaining councils and minimum wages remain central to debates about job creation in South Africa. Many argue that well-paid, secure unionized workers keep labour expensive, prevent the growth of employment, and protect their privileged access to the limited jobs available (cf. Payne Reference Payne2011; Mail and Guardian 2011). In the light of these contradicting interests, the solution seems clear. According to Seekings and Nattrass, South Africa should have ‘opt[ed] for a set of labour-market and welfare policies that encouraged the expansion of employment by the creation of low-wage jobs while providing limited, means-tested welfare for those who still failed to find work’ (2005: 380). They argue that this strategy, deemed fiscally and economically feasible, was not adopted because it was not politically feasible: ‘there were simply too many vested interests (most notably organised labour) opposed to such an economic solution’ (ibid.: 381).Footnote ⁴

QUESTIONING DUALISM

The idea that unionized workers and the underclass have opposing interests has broad appeal in South Africa (cf. Asher Reference Asher2001; Centre for Development and Enterprise 2011). It is of course true that one of the goals of unionization is to guard the membership from competition that drives wages down. Protecting access to jobs is thus inherent to unionization. However, whether this means that there is a fundamental incompatibility between the interests of unionized formal sector workers and the underclass is less clear.

The strategy of creating non-unionized low-paid jobs at the expense of better-paid unionized employees needs to be questioned.Footnote ⁵ One could ask whether the poor are really best served by undermining the position of a group that is aptly described as slightly less poor (see Tørres Reference Tørres1996). Indeed, Andries du Toit notes that it is ‘dangerous to equate access to a job – any job – with an escape from poverty’ (Reference du Toit2005: 19; see also Aliber Reference Aliber2003: 484) and that there are structural constraints on the number of unskilled jobs that can be created. Franco Barchiesi is sceptical about the potential of solutions that rely on low-wage job creation (2007) and argues in Precarious Liberation (2011) that low-waged and insecure jobs are not the solution to poverty, but part of the problem. When one considers the conditions and pay of many of South Africa's labourers, it does seem difficult to argue that they are privileged. Job security has been undermined through labour brokerage and lay-offs; wages do not keep up with inflation; and health and social security benefits have been clawed back if not revoked altogether. A precarious low-wage job market may in fact be closer to the reality than the inflexible high-wage market Seekings and Nattrass, as well as many others, believe to be the problem.

The argument for low-waged job creation relies on the assumption of opposing interests (Gelb and Webster Reference Gelb and Webster1996: 74), which draws on the same trope of dualism as the second economy discourse. Only if labourers and the underclass live in structurally disconnected economic spheres can one divorce their interests so easily; however, their lives ‘may well be more inter-related than Seekings and Nattrass suggest’ (Freund Reference Freund2009: 131). Seekings and Nattrass do not ask how income is redistributed, other than by the state, or how the livelihoods of people in the formal and informal economies may be linked.Footnote ⁶ Claire Ceruti argues that in Soweto ‘the employed and the unemployed are integrated at the level of the household’ (Reference Ceruti2007: 22). This is in line with unions’ claim that formal sector workers are the ones mostly responsible for intra- and inter-household redistribution and thus for the survival of the unemployed. Haroon Bhorat and Murray Leibbrandt (Reference Bhorat, Leibbrandt and Baskin1996) confirm that the wages of relatives are an important means of survival for many of South Africa's poor. They do note that a significant minority of the unemployed are not supported by wage earners, but even households without wage earners can benefit from formal sector wages, as these circulate in the informal economy.

The dichotomy between the formal and the informal economy is equally questionable. Andries Bezuidenhout and Khayaat Fakier (Reference Bezuidenhout and Fakier2006) describe the life of Maria, a cleaner at Wits University. She combined her poorly paying job with informal work as a seamstress and landlord. Moreover, there were at least twenty-one people who relied on her for financial and other assistance; many of them were members of the underclass. She was part of a complex network of redistribution both within and outside her household that transcended both the divide between the working class and the underclass and between the formal and the informal economy. Maria's work conditions had in fact changed to those of a low-wage and flexible labour market. From being unionized, having health and other benefits, and earning more than R2,500 per month, cleaners at Wits lost their collective representation and benefits through the contracting out of cleaning services and earned as little as R500. These changes did not lead to greater employment, as the number of employees had also been cut.

In the above-mentioned special issue, Maxim Bolt (Reference Bolt2012) brings up another case study of the lives of Zimbabwean workers on a South African farm and notes intricate links between wage labour and several types of informal entrepreneurialism. Some workers, or their wives, run shops and shebeens in the farm compound. Others send small and non-perishable consumption goods to their families, both for personal use and to sell. On pay-day a multitude of informal traders come from nearby Musina to ply their wares. Bolt mentions some other informal trades, but what all these businesses have in common is that they rely on the formal economy. The farm and formal employment are central to these livelihoods. Undocumented migrants can run their business without being arrested or deported because they work on the farm; workers can run shops and shebeens in the compound because they work there and have access to wages for investment; Musina's informal traders can sell their goods because their customers earn wages.

Wage labourers and the underclass share resources, and households and families combine both formal and informal sources of income in their livelihoods. These examples force us to question common dualist interpretations of the South African economy. Looking at the livelihoods of workers and the poor shows us that there is no unambiguous divide between the employed and the unemployed or between the first and the second economy. Nevertheless, as Andries du Toit and David Neves note, ‘in the national debates about poverty and “underdevelopment” not much attention has been directed to exploring in detail the livelihoods of the marginalised poor themselves, the precise nature of their links with the mainstream economy, and what this means for their social and economic (dis)empowerment’ (2007: 151). This is the void that articles in the recent special issue on ‘Popular Economies’ fill, in particular the articles by Neves and du Toit (Reference Neves and du Toit2012) and Bolt (Reference Bolt2012).

Not only are the livelihoods of today's poor missing from the discourse, but a similar appreciation is also lacking for the multifaceted nature of livelihoods of South African workers throughout the twentieth century. My research on livelihood strategies of Durban's African dock workers in the 1950s indicates that these labourers were not ‘either’ formal sector wage labourers ‘or’ informal entrepreneurs (Callebert Reference Callebert2012b). There was no clear-cut distinction between the two sectors in their livelihoods. They invested in cattle and agriculture, and a majority of them used their wages, the flexibility of casual labour, and their opportunities to pilfer cargo to set up informal commercial businesses. They sold cigarettes and sweets on the docks, dagga in the city, or they pilfered goods to sell at home or in the townships. Others supplied their wives or township women with goods to sell, pilfered or bought from their wages, or with start-up capital for small-scale enterprises. These strategies allowed them to retire early from dock labour and to rely on their informal businesses for income. The household strategies of these workers transcended the dichotomy between the formal and the informal economy, terms which were of course not yet in use, and their dock labour allowed them, their wives, or the township women they supplied to become informal traders.

There are strong indications that such livelihoods, combining formal and informal resources and strategies, survived the 1950s despite concerted attempts by the apartheid government to suppress informal African trade (Rogerson and Hart Reference Rogerson and Hart1989; Nesvåg Reference Nesvåg2000; Skinner Reference Skinner2008). Academics discovered the informal sector in South Africa relatively late (Potts Reference Potts2008: 154; notable exceptions can be found in the work of mid-century liberal anthropologists, cf. Hellmann Reference Hellmann1948), however, and there is little work on this sector before the 1980s. Nevertheless, none of this should be surprising. Such multifaceted strategies are common around the continent (cf. Lindell Reference Lindell2010a), but scholars of Southern African labour have often preferred to stress either proletarian or rural consciousness, and have largely ignored livelihoods that defied such categorization. This portrayal was rooted in political debates. Under apartheid and segregation, progressive intellectuals were invested in depicting African workers as modern proletarians and in discussing labour migration and its multifaceted livelihoods as a transitional stage artificially perpetuated by segregationist policies. This proletarianization thesis challenged the conception of migrant labour as a choice of rural, traditional Africans who wanted to keep their rural lives intact, which was of course an account used to legitimate segregation and institutionalized labour migration. Both James Ferguson (Reference Ferguson1999) and Deborah Potts (Reference Potts2010, Reference Potts2011) have argued that a certain exceptionalism, based on a meta-narrative of modernization and proletarianization, has kept students of Southern African labour from engaging more extensively with the rich literature on more complex livelihoods elsewhere in sub-Saharan Africa.Footnote ⁷ Not enough attention has been paid to workers straddling both the formal and the informal economies and the rural and the urban spheres, and to complex networks of redistribution within and between households. We should not reduce the livelihoods of South Africa's poor and working poor either to formal wage labour or to being part of the second economy or underclass.

TRANSCENDING THE DIVIDE

Dualist accounts do not offer a useful framework through which to interpret the lives and concerns of South Africa's poor. We should consider the formal and the informal economies as intricately connected and the interests of wage labourers and the underclass as not necessarily in opposition (see also Callebert Reference Callebert2012a). Karl Marx noted that the production of poverty is linked to the creation of wealth (Reference Marx1936 [1847]: 104); the plight of the unemployed and of informal workers cannot be understood without also looking at the development of the formal/first economy. The answer to poverty in South Africa cannot be as simple as integrating the second economy into the first or absorbing the unemployed into the workforce. However, one does not have to go back to Marx to find pointed criticisms of economic dualism. One of the enduring legacies of Wolpe's critique (1972) of liberal scholarship was his emphasis on thinking about the economy as a whole (Sitas Reference Sitas2007: 43).

Today, too, these dualist discourses are being questioned. Numerous scholars have picked apart the conceptual disjuncture between the formal and the informal economy (Devey et al. Reference Devey, Skinner and Valodia2006a, Reference Devey, Skinner, Valodia, Buhlungu, Daniel, Southall and Lutchman2006b; Frye Reference Frye2007; Valodia and Devey Reference Valodia and Devey2010).Footnote ⁸ They point to the extensive forward and backward linkages between the two sectors: informal traders market goods produced and sold wholesale by formal businesses, and the formal sector sources goods from the informal sector, for example when tourist shops sell local crafts. People manage to survive on otherwise insufficient wages because they earn extra money in the informal sector or live in cheap informal housing; cheap wage labour is thus reproduced in the informal economy. The presence of a large unemployed population also keeps pressure on wages.

Seekings and Nattrass have remarkably little to say about the informal economy and thus underestimate the many ways in which the lives of the unemployed intersect with those of labourers.Footnote ⁹ Most importantly, they do not look in detail at intra- and inter-household redistribution. The working class makes significant contributions to the survival of the underclass, as Ceruti and others have pointed out. We need to understand these forms of redistribution better before we can assume opposing interests.Footnote ¹⁰ There are indeed reasons why organized labour is inherently ill-equipped to defend the interests of the unemployed and COSATU's position in the tripartite alliance comes with serious limitations. However, the interests of the working class cannot simply be divorced from those of the unemployed and informal workers. The growth of unemployment and contingent labour has forced the trade union movement, for better or for worse, to think more broadly about labour market and welfare policies (Barchiesi Reference Barchiesi2007: 568–9), as well as its relationship with the unemployed. This has resulted, for example, in COSATU's support for a Basic Income Grant (BIG) of R100 per month for each South African.Footnote ¹¹

While COSATU's position was compromised by the alliance with an ANC hostile to this demand, its support was probably not insincere. Matisson and Seekings (Reference Matisson, Seekings, Standing and Samson2003) call COSATU's position an ‘unusual stance on the part of a relatively privileged section of society’, which ‘has a clearly rational and self-interested base’ (ibid.: 65). The use of the phrase ‘self-interested’ is significant. This is indeed a demand in the interest of the working class, who carry much of the burden for redistribution and need to consider the possibility that they too may become unemployed. Where does this observation leave the idea of opposing interests? Does this ‘self-interested’ support for the BIG not highlight a common interest between workers exposed to demands from unemployed relatives and an underclass that needs financial assistance? Organized labour has made some attempts, admittedly with limited success, to reach across this divide and to organize the unemployed and informal workers as well, or to support self-organization (Sitas Reference Sitas1998; Devenish and Skinner Reference Devenish, Skinner, Ballard, Habib and Valodia2006: 264; Appolis Reference Appolis2007).Footnote ¹² There are inherent difficulties in this approach: these groups are difficult to organize and do have certain interests that differ from those of the union's membership. There are, however, also issues around which alliances can be and have been built (Lindell Reference Lindell2010b; Barchiesi Reference Barchiesi2010; Çelik Reference Çelik2011), such as the BIG, service delivery, resistance to privatization, and job creation. Despite all the scholarly and other attention for new social movements, trade unions remain the only popular organizations with the membership, resources, political influence and organizational capacity necessary to effect change (Friedman Reference Friedman2012). At the same time, unions need to reach out to new constituencies, since casualization and growing unemployment undermines their membership (see also Chune and Egulu Reference Chune and Egulu1999).

Apart from backward and forward linkages, cheap services and redistribution, there is another important link between the first and the second economy. Formal jobs provide opportunities for informal businesses, either for the workers themselves or for those receiving remittances. Wage income also is redistributed in the informal economy. Durban's dock workers in the 1950s could become small-scale entrepreneurs because of the flexibility of casual labour, comparatively good wages, and access to cargo. Zimbabwean farm workers in the mid-2000s could trade small consumer goods at home or run their businesses on the farms because of their formal sector jobs and income. In both cases, formal jobs were the vehicle for informal enterprises. All of this renders specious the claim of opposing interests between organized labour and the unemployed and the discourse about two economies. The interests of wage labourers, informal workers and the unemployed cannot be separated so readily. Many unemployed rely on transfers from formal sector workers like Maria. Thus, her significant pay-cut would have hurt them as well. Decent wages and job security may also be in the interests of informal traders who get their working capital from wages or who depend on labourers as customers. That is not to say that job creation is not a laudable goal, but expanding employment at the expense of unionized labourers and the working poor may not be the best way to achieve this goal.Footnote ¹³ Job creation, du Toit remarks, ‘should go hand in hand with measures aimed at reducing risk and bringing some measure of income stability to the poor’ (2005: 19).

The implications of these conclusions are not limited to matters of policy; they also extend to research agendas. As du Toit and Neves have noted, the often complex livelihoods of poor South Africans have been under-researched. Research on ‘popular economies’ can highlight the ways in which income and resources are redistributed and circulated, what sources of income are combined with wage labour, and other links between the formal and informal economies as well as between the working class and the underclass. While we know relatively little about these livelihoods today, their history is even more opaque. There are few histories of the informal economy in South Africa and there are few labour histories that sufficiently acknowledge workers’ multifaceted livelihoods. We have limited knowledge of how the combining of wage labour with informal trade both survived and changed under the weight of growing unemployment, an increasingly crowded informal sector, and growing household fragmentation since the 1970s.

The different contexts of Durban's dock workers in the 1950s and Zimbabwean farm workers in the mid-2000s illustrate why history matters. These dock workers started their jobs before mass unemployment; moreover, there was at that time very limited competition in the townships and rural areas where they built their businesses. Today, these two crucial advantages have disappeared. There are millions of unemployed in South Africa and informal trade now takes place in a context of cut-throat competition and razor-thin profit margins. Where starting an informal business allowed certain dock workers to live a comparatively comfortable life in the 1950s, today's traders are often fighting for mere survival rather than economic independence. Fortunes in the informal sector are thus also determined by the state of the formal economy. Studying the history of the informal sector and of livelihood strategies that straddle both sectors can highlight these changing interdependencies. Without looking at informal entrepreneurship through a historical lens, one can all too easily celebrate the poor lifting themselves up by the bootstraps rather than discern changing strategies to cope with an increasingly difficult labour market and an ever-more-competitive informal economy. Indeed, one of Wolpe's other enduring legacies is his contention that to understand capitalism and labour relations at present, we need to understand how they have developed historically (Sitas Reference Sitas2007: 42–3).