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      Trade unions, the state and ‘casino capitalism’ in South Africa's clothing industry

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            Abstract

            Relationships between trade unions, the state and capital in South Africa have changed dramatically, especially in the clothing sector. The clothing workers’ union became heavily dependent on its political alliances with the governing party, not only for the regulation of wages and industrial policies, but also for Black Economic Empowerment policies that helped it to acquire massive shareholdings, including in the largest clothing manufacturer. In terms of both its exposure to capitalist risk and its investments in the casino industry specifically, the union acquired a stake in ‘casino capitalism’, whilst relying on government to stack the odds in its favour.

            Translated abstract

            [Les syndicats, l’État et le « capitalisme de casino » dans l'industrie textile sud-africaine.] Les relations entre les syndicats, l’État et le capital en Afrique du Sud ont changé considérablement, en particulier dans le secteur textile. Les syndicats des employés de l'industrie textile sont devenus grandement dépendants de leurs alliances politiques avec le parti au pouvoir, pas seulement pour la régulation des salaires et les politiques industrielles, mais aussi pour les politiques d’émancipation économique des noirs qui les ont aidés à acquérir beaucoup d'actions, y compris dans l'entreprise textile la plus importante. Le syndicat a acquis une part dans le « capitalisme de casino », en terme d'exposition au risque capitaliste et au niveau de ses investissements dans le secteur des casinos en particulier, tout en attendant du gouvernement qu'il mette les chances de son côté.

            Main article text

            Introduction

            In the 1980s and early 1990s, South Africa's trade unions mobilised for political change, challenged managerial despotism on the shop floor and secured improved working conditions and higher wages (Baskin 1991; von Holdt 2003). After the transition to democracy, unions’ political influence expanded, both through the participation of the Congress of South African Trade Unions (COSATU) in the Tripartite Alliance with the governing African National Congress (ANC) and the South African Communist Party (SACP), and through the participation of union members, shop stewards and officials in ANC and SACP structures. Trade unions expanded their institutional power through corporatist institutions, especially the sectoral bargaining councils established under the 1995 Labour Relations Act (LRA). Unions’ organisational capacity also expanded. By the early 2000s, COSATU and its affiliates had more than 1800 full-time officials, a dedicated parliamentary office and a research wing (Webster and Buhlungu 2004). At the same time, critics charged, workplace organisation weakened and unions’ officials with their many perks became more and more distanced from the unions’ members, resulting in wildcat strikes and exacerbating challenges of ‘ungovernability’ in the workplace (Bramble and Barchiesi 2003; Buhlungu 2010; Buhlungu and Tshoaedi 2012). COSATU itself disputed such analyses (COSATU 2010), but events in the mining sector in 2012–2014 gave these criticisms renewed credence. Disaffected platinum mineworkers defected from the National Union of Mineworkers (NUM), hitherto the largest union in COSATU, and joined the rival Association of Mineworkers and Construction Union (AMCU). This led to the Marikana Massacre in August 2012 (Alexander 2013) and a long and bitter strike in the first half of 2014.

            In late 2014, simmering ideological tensions within COSATU came to the boil, resulting in the expulsion of the National Union of Metalworkers of South Africa (NUMSA) and, in early 2015, COSATU's general secretary, Zwelinzima Vavi. NUMSA, the largest manufacturing union, had declined to support the ANC during the 2014 elections. It was also recruiting members in other sectors, challenging other unions. As of April 2015, NUMSA was in discussions with AMCU and other non-COSATU aligned unions over the formation of a rival federation and political party. But the other large union in the manufacturing sector, the Southern African Clothing and Textile Workers Union (SACTWU), opted to stay in COSATU.

            SACTWU's hesitancy to burn its bridges with the ANC accorded with its evolving relationship to both the state and capital. Organising in low-wage sectors, SACTWU depended heavily on the state for the control of non-unionised employment through wage regulation, as well as for the industrial policies that facilitated higher wages for its members. SACTWU also benefited hugely from state-sponsored Black Economic Employment (BEE), acquiring, both directly and indirectly through Hosken Consolidated Investments, substantial business interests, including in the largest clothing producer (Seardel) as well as in the casino, media and other sectors. In terms of both its exposure to capitalist risk and its investments in the casino industry specifically, the union acquired a stake in ‘casino capitalism’, whilst relying on the state to rig the odds in its favour.

            SACTWU's financial interests have had political and economic consequences. Politically, a break with the ANC would entail considerable costs because of the union's multiple dependencies on public policy. Economically, SACTWU's deepening business interests reinforced its preference for relatively high-wage and capital-intensive production models that provided fewer but better-paid jobs. SACTWU's enthusiasm for destroying the remnants of the lower-wage, more labour-intensive end of the clothing industry reflected the union's evolution into a business as well as its concerns as a trade union. The case of SACTWU illustrates how, in some sectors at least, the relationships between unions, the state and capital in South Africa have changed fundamentally since the end of apartheid.

            Union and state in the South African clothing sector

            In the early 1990s, South Africa's clothing manufacturing sector was widely recognised as being in poor health. Whilst it continued to employ at least 140,000 workers, it paid wages that were low or very low relative to most other formal employment in South Africa. Employers, SACTWU and the state concurred that the sector had underinvested and lapsed into inefficiency whilst protected behind tariff barriers under apartheid. In response to these pressures, SACTWU gradually developed a strategy that rendered the union more and more dependent on the state and hence the ANC. This entailed, in the 1990s, deepening dependency on the state for the control of non-unionised employment, especially in lower-wage parts of South Africa, through wage-setting. Later, in the 2000s, the union became increasingly dependent on the state for the provision of capital subsidies to protect its members’ employment.

            In 1992, during the transition to democracy, the tripartite Swart Commission was appointed to draft a long-term strategic plan for the clothing and textile industries. In 1994, the Commission recommended a combination of trade liberalisation together with state-funded supply-side measures including support for training, subsidised investment in new technology and support for small businesses. Reduced tariffs on textiles were especially important for the clothing industry, but the South African textiles industry would only survive if it raised massively its productivity, hence the need for state support. Productivity was an issue in clothing manufacturing also, but to a lesser extent (South Africa 1994). Overall, these were the kinds of measures intended to raise productivity and thus to facilitate higher wages that were recommended by the separate, COSATU-linked Industrial Strategy Project (ISP), both for manufacturing industry as a whole (Joffe et al. 1995) and the clothing and textiles sectors specifically (Altman 1994; Maree 1995).

            Successive Ministers of Trade and Industry – including Trevor Manuel (1994–1996) and former trade unionist Alec Erwin (1996–2004) – reduced tariffs but did not implement the state subsidies recommended by the Swart Commission and ISP (Hirschsohn, Godfrey, and Maree 2000, 71–74). Some textile and clothing producers were unable to compete in the new, more open economy. Between 1996 and 2002, a depreciating rand served to cushion South African producers, and aggregate employment in clothing remained broadly stable. But the geographical distribution of employment in clothing manufacturing shifted, with a decline in employment in the higher-wage metropolitan areas and a growth in employment in lower-wage, non-metropolitan areas such as Newcastle and Ladysmith in northern KwaZulu-Natal. SACTWU's predominantly metropolitan membership fell rapidly, and the union prioritised an offensive against the ‘sweatshops’ in Newcastle and elsewhere.

            The union's strategy revolved around securing control of procedures for setting minimum wages in areas like Newcastle, and then using this power to raise wages and eliminate non-unionised employers, in part because it believed that this would protect union members’ jobs in Cape Town and elsewhere. In the late 1990s wages in the metropolitan areas (and some other areas) were set through collective bargaining in regional bargaining councils. The LRA provided for collective agreements between the union and employers to be extended by the Minister of Labour to cover all workers within the bargaining councils’ geographical jurisdiction. Employers and workers in, for example, Newcastle fell outside of the bargaining councils’ jurisdiction. Wages there were set by progressive technocrats in the Wage Board and its successor, the Employment Conditions Commission, both of which were required to take employment effects into account when setting minima. SACTWU recognised the importance of establishing a national bargaining council, covering the entire country, so that a collective agreement reached by the union and any one employers’ organisation could be extended countrywide by the Minister of Labour, i.e. covering employers in areas like Newcastle who were not party to the collective agreement in the bargaining council. This enabled the union to circumvent the progressive technocrats who worried about employment effects. The LRA thus allowed a union to raise wages dramatically in lower-wage areas, as long as there was a national bargaining council and at least one employers' association could be recruited, and without regard to job destruction. Recruiting some employers to this task was easy enough, because the Cape Town employers were as keen as the union to eliminate competition from employers in Newcastle. Forcing the various other regional employers’ associations to form a national bargaining council was more difficult, and the union only achieved this in 2002 (Anstey 2004). The formation of the National Bargaining Council (NBC) for the Clothing Manufacturing Industry allowed the union to raise minimum wages in lower-wage areas and to shut down employers that did not comply with the raised wages. The union continued to push for supportive industrial policies (including at a Clothing and Textiles Sector Jobs Summit in 2000), as well as action against illegal imports (‘dumping’) and a ‘buy local’ campaign (Bennett 2003, 31–33), but its primary objective remained ‘decent work for all’, understood in terms of higher wages, and without much concern with employment among non-unionised workers.

            Whilst the union embraced an institutionalised approach to minimum wage-setting, which allowed it to discipline employers, it preferred a position of ‘strategic ambivalence’ (Hirschsohn, Godfrey, and Maree 2000, 84) with respect to bargaining over other issues, including other wage-related issues. It avoided interest mediation or compromises with business whilst retaining a ‘private voice in the corridors of power and decision-making’ (Ibid.). The union resisted, successfully, employers’ calls for a new ‘wage model’ that would allow individual workers’ wages to be linked to their productivity (Anstey 2004). When a report commissioned by the chief economist of the Department of Trade and Industry (DTI) seemed to endorse the need for a new wage model (Minor, Velia, and Hughes 2002), the union lobbied behind closed doors, winning an assurance from the Minster of Trade and Industry that the DTI would not support this (Morris and Levy 2015, 23).

            Between 2002 and 2004 the rand appreciated sharply, at the same time as the union used the new NBC to raise wages, especially in lower-wage areas. This resulted in factory closures and a marked decline in employment. Chinese producers not only captured South Africa's export markets but also penetrated deeply into the South African market, resulting in cheaper products for consumers at the cost of plummeting employment. Under pressure from employers, the DTI initiated a consultative process to formulate a ‘customised sector plan’ (CSP) for the clothing industry. SACTWU initially remained aloof from this process but, when the draft CSP was released in 2005, used its political influence to make changes to the document, thereby undermining the consultative process that had produced it, and alienating the retailers in particular (Morris 2011; Morris and Levy 2015). Morris assessed that ‘the DTI had capitulated to the union,’ changing the CSP in ways that allowed ‘the union to be the prime driver of industrial policy’ and undermined tripartite bargaining (2011, 24–25). Thereafter SACTWU secured union-friendly industrial policies, especially after 2009 when the union's general secretary, Ebrahim Patel, became Minister of Economic Development and his close ally, Robert Davies, became Minister of Trade and Industry. The DTI finally began to implement the programme proposed by the Swart Commission and ISP: competitiveness would be restored through mechanisation made possible through capital subsidies paid by the state to favoured employers. These successes were achieved through direct political influence within the ANC and the Alliance, not through institutionalised tripartite agreements.

            Pressure from SACTWU also led to the government concluding a temporary agreement with China in 2007–2008 which restricted Chinese imports (Morris and Levy 2015, 2323). South African manufacturers wishing to import inputs from China could apply for exemptions; the DTI referred applications to SACTWU. The union was thus able to use its power over the policy process to achieve other objectives such as requiring employers to sign onto collective bargaining agreements, facilitate union organisation and the like.1

            In 2009, just two weeks after their appointment as ministers in Jacob Zuma's first government, Patel (‘comrade minister’ as SACTWU called him2) and Davies were faced with the threatened closure of Frame Textiles in KwaZulu-Natal. Patel and Davies began talks with the state-owned Industrial Development Corporation (IDC) – initially housed in the DTI but subsequently moved under the control of Patel's Department of Economic Development – to rescue the company (Donnelly 2009). The IDC had initially declined requests to assist Frame, but under political pressure reconsidered the issue, including working with a prospective (but unnamed) ‘Asian investor’ to buy into the company. Davies explained that government was ‘trying to defend strategic industrial capacity’ and ‘create the conditions to build on this and progressively shift the growth path to one which yields decent work and sustainable livelihoods’ (quoted in Ensor 2009). Yet the negotiations dragged on amidst rumours that SACTWU was blocking the deal by refusing to allow further retrenchments, whilst other firms complained that the entire industry needed assistance and preference should not be given to a single firm. The foreign investor walked away, and Frame was closed (Le Roux 2009).

            In sum, through the 1990s and 2000s, SACTWU sought to use state power to compel employers to adopt a more capital- and skill-intensive production model which could accommodate higher wages than the more labour-intensive end of the industry. The union's strategy, eventually adopted by the state, assumed that labour-market and industrial policies could catapult the industry onto a high-wage, high-productivity growth path through skills development and industrial upgrading. ‘Decent work’, however, meant better-paid work for a diminishing number of employees. Capital subsidies helped the industry to focus on the top end of the market, whilst the LRA extension mechanism enabled the union (and Cape Town-based employers) to close down lower-wage, more labour-intensive producers competing with imports for the bottom end of the market. Elsewhere it has been argued that this approach was misguided, at least in the 2000s, in that closing down lower-wage producers in areas like Newcastle did not protect higher-wage producers in Cape Town as they were competing in different product markets (Nattrass and Seekings 2012, 2014). Whether or not this was the case is not important to our argument in this article, however. Our point here is that SACTWU's strategy required access to state power to ensure favourable labour-market institutions, capital subsidies and other supportive policies, and to ward off pressure from employers for an alternative wage model.

            Union investment funds: workers as capitalists?

            At the same time as it was pushing for union-friendly wage-setting institutions and industrial policies, SACTWU was itself undergoing a fundamental transformation through its accumulation of massive financial assets. As of March 2014, SACTWU owned shares worth R5.8 billion and was receiving over R50 million a year in dividends. SACTWU ceased to play a straightforward role as a trade union organising in the working class and its relationship with the state was complicated by its dual role as union and investor. Its financial income affected the incentives facing the union, dovetailing with its preference for a more capital- and skill-intensive industry.

            The success of union investment companies creates tensions for the union movement. SACTWU is the major shareholder in the most successful union investment vehicle, Hosken Consolidated Investments (HCI). SACTWU's economic incentives were complicated further by its part ownership of Seardel, which, aside from owning a low-wage factory in Lesotho, also owned Frame Textiles, the firm that Patel tried to bail out weeks after he stepped down as general secretary of SACTWU. Thus, at the time, Patel was widely regarded in the industry as favouring SACTWU as both union and investor (Bisseker 2009).

            In discussing HCI/SACTWU's efforts to save Seardel, we also show that wage and other economic pressures acting on the wider clothing industry could not be resisted, even with the best efforts of union management and government assistance. SACTWU's power to shape policy thus did not translate into any sustained success when it came to saving jobs. Rather, its opposition to altering the wage model contributed to economic pressures undermining employment in the firms it owned and in the wider industry.

            SACTWU used state power not only to try to transform the clothing and textiles industries to raise productivity and permit much higher wages, but also to acquire massive financial assets. In this regard, it benefited substantially from BEE policies which expanded opportunities not only for an emerging black elite but also for largely ‘black-owned’ organisations, including trade unions. BEE was a logical development of the history of the ANC and the nature of South Africa's democratic transition (Southall 2007). Yet it was not without its tensions and contradictions, especially with regard to the involvement of unions. Supporters argued that BEE deals offered trade unions the chance to accumulate substantial strike funds, give workers a greater say over investment decisions and potentially transform the economy in progressive directions, and help to consolidate democracy (Iheduru 2002; Southall and Tangri 2006, 132; see also Dexter 1999; Golding 1997; Vlok 1999). Others, however, worried that this was regressive in that the strategic focus of South African unionism supposedly came ‘to resemble a combination of narrow workerism and “social capitalism”’ (McKinley 1999, 85). But, as discussed below, the focus of union investment on high-end property, media, hotels and especially casinos indicates that there was not much ‘social’ about the form of capitalism it typically engaged in.

            As early as 1997, COSATU's September Commission voiced its concern that the line between unions and investment companies was becoming blurred and that officials were gaining financially from fees and cheap shares. It recommended that the goals of union investment vehicles be ‘radically broadened’ beyond considerations of profitability and more closely aligned with the strategic perspective of the union movement (COSATU 1997). In practice, however, most union investment vehicles prioritised profitability. By the early 2000s they had accumulated substantial financial assets, mostly in financial services, information technology and especially in media and casinos (Southall and Tangri 2006, 133–134).

            Union investment in the gaming industry contradicted COSATU's policy. In its 2007 submission to the National Gambling Amendment Bill, COSATU stated:

            We are opposed to any form of legalisation of gambling. We view gambling as a self-destructive vice that does a lot of harm to society. It gives false hope and promises to people that they can escape the misery of poverty, instead often plunging them into debt and deeper poverty. Instead of directing resources to productive investment, gambling takes away from the poor to the rich. It promotes greed. John Maynard Keynes once said that the only people who win from gambling in the long run are those who operate the gambling. (COSATU 2007, 2)

            Presumably the union investment managers thought that the benefits to them of operating the gambling exceeded the costs to society.

            Most union investment vehicles ‘muddled along, maintaining small portfolios with little apparent market interest in them as BEE partners’ with some acquiring ‘dubious reputations’ in the process (Cargill 2010, 141). Companies set up by NUMSA and the South African Railway and Harbour Workers Union were not very successful (Southall and Tangri 2006, 133; Vlok 1999). Some disreputable practices backfired on the union movement. For example, COSATU's own investment arm, Kopano Ke Matla, suppressed criticism from within COSATU of a fishing company it owned (Cargill 2010, 147–148) and in 2014 it was revealed that Kopano had defrauded COSATU in a property sale and conducted an unapproved pension fund administration business resulting in the disappearance of millions of rands (Welz 2015).

            The NUM's Mineworkers Investment Corporation (MIC) and the ‘SACTWU Investment Group’ (SIG, housed in HCI) were notable exceptions to this story. They became massively successful union investment vehicles, contributing significantly to trusts aimed at benefiting union members and their families through educational bursaries and social programmes (Cargill, 2010; Southall and Tangri 2006, 133). Of the two, the SIG was by far the most successful in financial terms. Whereas the MIC leveraged an initial loan of R3 million in 1995 to achieve financial assets worth R1.4 billion in 2010, SIG leveraged a loan of R2 million to achieve financial assets of R4 billion over the same period (Cargill 2010, 138). By the mid 2000s, SACTWU and NUM accounted for more than 90% of union company investment interests, an outcome COSATU attributed to a rising stock market, BEE deals and being able to ‘take advantage of opportunities in regulated telecommunications and casino industries on extremely favourable terms’ (COSATU 2006).

            SACTWU also managed six pension funds (for members in different sub-sectors), but with less success. In 2011 it transpired that much of the money had been channelled to Trilinear Investments, which was not a recognised investment vehicle, and that the decision had apparently been made on the strength of a presentation by the owner to the trustees. R400 million was subsequently squandered by Trilinear on a failed luxury property development and on an unsecured loan to a business (Canyon Springs) co-owned by Enoch Godongwana (who was not only a former trade unionist but also the ANC deputy minister in Patel's Department of Economic Development) that subsequently went bankrupt. SACTWU suspended its deputy general secretary (who was the trustee of three of the five funds) and took legal action against various people involved, including the former national benefits coordinator for SACTWU (Underhill 2012). SACTWU later reported that it had used R200 million of its own financial assets to replenish half of the retirement funds that had been lost (Paton 2013). The episode illustrates that financial management is fraught with danger as well as opportunities. It was fortuitous that SACTWU's independent wealth could be mobilised to compensate, at least in part, the workers’ pension funds that had been mismanaged under its watch.

            From 2007 (excepting 2009, following the financial crash), the market value of SACTWU's shares in HCI and Seardel per member exceeded the annual minimum wage of an experienced machinist in Cape Town (see Figure 1). Between 1999 and 2005, about R120 million in financial dividends from these shares were channelled by SACTWU to fund its social programmes. These included support for schools, a winter school and funding for shelters for victims of domestic violence (HCI 2005, 14–15). SACTWU also funded sport and recreational activities for its members, provided bursaries for tertiary education for their children, a housing loan scheme at rates below those of commercial banks and guarantees for members to access loans through the National Housing Trust. As of 2005, SACTWU members had obtained over R100 million in housing loans through this scheme (Ibid., 15).3

            Figure 1.

            SACTWU's HCI and Seardel share value per member, and total membership. Data on membership from http://www.cosatu.org.za/docs/reports/2012/report.pdf. Data on Seardel from http://www.seardel.co.za/investor-relations. Data on HCI from http://www.hci.co.za/financials/.

            In 2013, SACTWU's dividend payment from HCI alone was R54 million. This was probably about the same as its total income from membership fees. If its claimed membership of 92,361 workers4 paid on average R12 per week in fees (i.e. midway between the maximum fee of R15.20 and the minimum of R9.10), this implies an income stream from membership fees of about R53 million.5 Significant investment income in relation to membership fees affects the incentive structure facing unions. As Faulkner earlier pointed out in relation to ‘business unionism’ in the other countries, it ‘decreases the need for organising campaigns to extend membership', potentially also harming union democracy and accountability (1999, 22). SACTWU's independent wealth and commitment to providing social programmes for its members dovetailed with its preference for high-wage, high value-added jobs. A smaller number of better-paid workers implies higher fee income per organising effort and larger allocations per member of investment-funded social programmes. SACTWU historically has higher rates of organisation in larger firms, with limited membership in the smaller cut-make-and-trim operations (Webster et al. 2008, 86) precisely because it is easier to organise in larger firms. Its investments provide a strong incentive to continue this trend.

            HCI, the most successful of the union investment companies, provides a lens for exploring the tensions and choices facing union investment vehicles over whether, and when, to prioritise profits and when to act strategically to save jobs of union members. As discussed below, HCI, under pressure from SACTWU, made a substantial investment in the clothing industry through its involvement with Seardel, then South Africa's largest employer in the clothing industry. In this regard, HCI differed from the MIC, which had a shareholder's compact preventing it from taking a direct stake in any company in the mining, energy and construction sectors where the NUM organises workers.6 SACTWU (like the chemical workers’ union) was happy to invest in its own backyard (Cargill 2010, 145). The advantage was that SACTWU could – and did – act to save jobs for its members that might otherwise be lost. The potential disadvantage is that it results in the kind of conflict of interest the MIC sought to avoid. As we show below, SACTWU's strategy to save jobs in the clothing firms it owned was assisted by government subsidies and related support. But even so, HCI struggled to save Seardel, eventually selling the remaining apparel units directly to SACTWU. It was only because of its significant investment through HCI that SACTWU had the resources to buy the factories outright and to sink an additional R25 million into a ‘design centre’ to boost innovation and fashion.7

            HCI, casino capitalism and Seardel

            John Maynard Keynes famously likened the stock market to a casino (1936, 142). Through HCI and its other investments, SACTWU participates in casino capitalism not only in the literal sense of owning assets in the gaming industry, but also in the figurative sense of stock market interests.

            In 1997 SACTWU and the NUM acquired control of HCI, thereby creating the biggest union-controlled investment company on the Johannesburg Stock exchange (JSE) (Golding and Copelyn 2007, 6). According to Marcel Golding, former deputy general secretary of NUM and chairman of HCI, the objective was to improve the wealth and savings of workers, to provide employment opportunities and to contribute to the transformation of the economy (Golding 1997). He and Johnny Copelyn, the former general secretary of SACTWU and CEO of HCI, launched an investment strategy that made them both rand billionaires8 and which would transform SACTWU from a working-class union into an independently wealthy entity. They used HCI's BEE status (largely courtesy of the NUM and SACTWU having predominantly black members) to obtain loans and shares. They also acted as opportunistic equity investors, picking stocks that benefited from the dotcom and technology stock bubble of the late 1990s. Then, having what they describe as the ‘good sense and luck’ to take their profits months before the market crash of 2000, Copelyn and Golding were able to repay HCI's debt and provide shareholders a substantial dividend (Golding and Copelyn 2007).

            Golding and Copelyn also bought a 25% stake in e.TV (South Africa's only private TV station), invested additional resources and eventually gained full control of it. Most shareholders, however, were unhappy with this move. In 2002, Copelyn and Golding sold HCI's shares in telecommunications and offered disgruntled shareholders a cash exit. Approximately 73% of the total share capital of HCI was returned – including from the NUM's MIC – leaving SACTWU and HCI management as the major shareholders. The following year, e.TV revenues increased by 43% (thanks to the football World Cup) and HCI started expanding and consolidating its holdings in casinos and hotels through its subsidiary, Tsogo Investment Holdings, a BEE holding company.

            From 2003 to 2007, HCI grew on the back of the global economic boom and rapidly rising stock markets in South Africa and abroad. It obtained economic interests in a range of sectors including mining, gas (in the United States), agriculture, traffic monitoring equipment etc. In 2004 HCI bought Cape Town's Golden Arrow Bus Service for R250 million, angering COSATU because a rival bid by a workers’ cooperative which had already invested R100 million with the company had been overlooked (Southall and Tangri 2006, 127–128). By 2007, HCI was ‘rated the number one financial services company in terms of broad-based black economic empowerment ownership and the fifth overall empowerment company on the JSE’ (Golding and Copelyn 2007, 6). HCI's market capitalisation had increased twentyfold, and SACTWU's share had increased seventeenfold (Figure 2). By this time, HCI's earnings were fuelled primarily by gambling, high-end property and e.TV.

            Figure 2.

            Market capitalisation of HCI from 2003 to 2014.

            Source: data from financial reports available from http://www.hci.co.za/financials/.

            The 2008 global financial crash made a dent on market capitalisation and no dividends were paid that year. Instead, HCI used the downturn in stock prices to gain a 75% stake in Tsogo, thereby orienting the company even further towards gaming. Also that year, HCI took control of Seardel, South Africa's premier employer in the clothing and textile industry.

            Seardel Investment Corporation originated in 1957 when Aaron Searll bought a small company employing 15 people to make nurses’ caps and bras. Eleven years later, he incorporated the business into an investment holding company, branching into other lingerie. The company expanded into garment production (purchasing Bonwit clothing from Woolworths in 1989 and gaining full control of Bibette clothing in 1996), toys, travel and property (gaining full control of Prima Toy and Leisure Group in 2001) and electronics (obtaining a controlling stake in Sharp Electronics in 1981). Seardel also moved upstream in the clothing value chain into textiles, eventually obtaining full control of the textile company Frame Group Holdings in 2001 (Seardel 2004, 9).

            By 2008, when Searll relinquished ownership of Seardel and Copelyn became chairman, it had grown to employ 15,000 people with a turnover of R3.9 billion, and was the largest apparel and textile group in southern Africa (Searll 2008, 4). It also owned a low-wage clothing production company (NyeNye Clothing) in Lesotho. But by this stage the company's South African textile and clothing production units were making such a loss that the company was threatened with bankruptcy. As can be seen in Figure 3, Seardel's apparel and household textiles division made losses of R162 million in 2008, significantly overwhelming the small contribution to profitability from other arms of the business.

            Figure 3.

            Profits generated by the different business segments of Seardel.

            Source: Annual reports available from http://www.seardel.co.za/investor-relations. (Seardel does not report profits by business segment. Profits were estimated by multiplying return on tangible assets by tangible assets for each business segment.)

            The decline of Seardel's clothing operations dated from 2003–2004, when an appreciating rand combined with wage pressures to undermine the competitiveness of South African clothing manufacturers. Clothing imports grew by 59% over a single year (three-quarters of imported clothing came from China). Seardel retrenched 10% of its clothing and textile workforce. In its annual report for 2004, Seardel recorded its hope that the new NBC in the clothing sector would come up with a ‘sensible agreement on a flexible wage model as both compliance and regulated flexibility should feature in our labour market policies’ (Lazarus and Searll 2004, 6). Despite being cautiously optimistic about industrial relations, and noting that ‘agreement exists in principle at the NBC with the representative trade union, SACTWU, on the need to be globally competitive and to develop “new generation” wage agreements focusing on labour productivity,’ Seardel's management complained that ‘insufficient progress has actually been made’ (Seardel, 2004, 19–20). In an attempt to gain some respite, the company moved its Durban garment-producing facilities to Ladysmith to benefit from the lower minimum wages allowed in such non-metropolitan areas.

            SACTWU responded by purchasing shares in Seardel (attaining 19.3% of N-ordinary shares in 2005) and Copelyn was installed on the board. Copelyn had some experience running clothing firms, through Zenzelini Clothing. Zenzeleni had been established by SACTWU in the late 1980s with finance provided as part of a retrenchment package to employ 300 retrenched textile workers (Cargill 2010, 137; Southall and Tangri 2006, 133). When it ran into trouble, in 1992, Copelyn was brought in to help recapitalise and restructure the company, and in the process had to lay off 150 workers (Cargill 2010, 137). The fate of presiding over retrenchments was to befall him again in Seardel.

            In 2005 Seardel's management complained about a COSATU-wide strike in support of its campaign to encourage retailers to buy local, noting that it ‘is difficult to understand how strikes can assist in saving jobs when the industry is under such intense competition from rand strength in the export market and from imports domestically’ (Seardel 2005, 20). The following year it complained about the inability of the NBC to facilitate ‘the adoption of a coherent labour cost structure which reflects the highly competitive nature of clothing manufacturing’ (Seardel 2006, 20), as well as the slow progress that was being made towards the CSP. In 2007, the company noted that the CSP had been ‘finally ratified’ after encountering ‘many delays and setbacks’ but complained bitterly that wage pressure was becoming unbearable: wage increases were ‘difficult to justify unless linked to clear productivity improvement initiatives’ (Seardel 2007, 20). In 2008, as Seardel's apparel business crashed into the red, dragging the entire corporation down with it, management stated that it would only implement the 12.5% minimum wage increase set for the non-metropolitan areas by the NBC when forced to do so by the legal extension of the agreement to them by the Minister of Labour (Seardel 2008, 11). As further job losses were announced, SACTWU mobilised its position in HCI to effect a bail-out of Seardel.

            In 2008–2009 a massive rights issue pitched at 50c a share and underwritten by HCI saved Seardel from liquidation. About R200 million of the R300 million used to acquire the 70% stake in Seardel came from SACTWU (Crotty 2012). But not even SACTWU's intervention could save Frame Textiles, which by that stage was losing R30 million a month (Ensor 2009). According to Golding and Copelyn, the decision to close Frame after the failed bail-out effort ‘rocked relations with our major shareholder, SACTWU, but still seemed unavoidable to us’ (Golding and Copelyn 2009, 6–7). Instead, they put their efforts into improving productivity and performance in the remaining clothing and textile production units.

            HCI's investment strategy had been focused, up until this point, on taking advantage of BEE deals and maximising shareholder value. Its move to rescue Seardel marked something of a break in strategy and was almost certainly the result of pressure from SACTWU. Not all financial commentators thought that this was a good idea. Golding and Copelyn were particularly incensed by one analyst's assessment that HCI shares should be discounted because management was displaying a ‘lack of focus’ by purchasing an asset in the troubled clothing industry. They retorted that they ‘were confident that the assets we have amassed in HCI are top class assets that anyone should be proud to own’ (Ibid., 6).

            The planned turnaround was derailed by the appreciation of the rand between 2008 and 2011. This exposed South African manufacturers to more intense international competition. Golding and Copelyn warned that, despite the management team in Seardel having ‘worked like a Trojan to turn that business around', it would be ‘silly to underestimate the difficulties of returning all the businesses in the group to sustainability’ (2010, 7). It was only the injection of significant government funding in the form of R78 million of production incentives that saved Seardel from running at a loss that year (Hasenfuss 2011, see also Figure 6). HCI blamed ‘persistent customs fraud, inequitable wage structures across the region, the strong rand and some internal operating shortcomings’ for continuing losses in the apparel division but expressed hope that new branding initiatives such as ‘obtaining the local and international rights to procure, manufacture, distribute and sell apparel and accessories under the 46664 [Nelson Mandela's prison number] brand name’ would help the firm enter higher value-added markets (HCI 2011, 20).

            Despite the depreciation of the rand from 2012, Seardel's apparel production unit continued to drain Seardel's coffers. Seardel would have made a loss in 2012 if it had not been for the injection of R192 million into Seardel as the result of a settlement of a long-running legal dispute with previous shareholders (HCI, 2012, 23). According to HCI, the competition faced by Seardel's apparel division from ‘imports out of lower wage paying countries and manufacturers from within South African borders that do not pay the prescribed minimum wages meant that rising input costs could not be recovered in higher prices for products supplied’ and that ‘the resultant losses were of such a magnitude that it left no alternative but to rationalise the business unit’ (21). To SACTWU's surprise, Seardel announced that it would be closing Intimate Apparel (retrenching 800 workers) in Cape Town (Hartley 2012).

            As employment and output contracted in the clothing and textile units (see Figure 4), Seardel relied increasingly on the distribution of branded products, property and leisure activities. Ironically, its rental properties included buildings that once housed clothing and textile factories. As shown in Figure 5, this coincided with rising average wages for the remaining workers in the company, higher asset-to-employee ratios (as the business became more capital-intensive as a whole) and rising profitability. In this regard, Seardel was a microcosm of the restructuring taking place in the wider economy towards more skill- and capital-intensive production (Nattrass, 2011, 2014a, 2014b).

            Figure 4.

            Employment in Seardel.

            Source: annual reports available from http://www.seardel.co.za/investor-relations. Note that Seardel reports aggregate data only. A breakdown of employment by sectors is available for the years 2010, 2011 and 2012 (Seardel 2012, 15) and annual reports mention staff numbers by sector occasionally, but not systematically. Some of the data is thus imputed using available information and trends.

            Figure 5.

            Seardel: key economic indicators from 2003 to 2014.

            Source: data obtained from financial reports available from http://www.seardel.co.za/investor-relations.

            Also in line with broader economy-wide trends, the wage share of value-added produced in Seardel declined while the profit share rose – especially once government production incentives are taken into account (Figure 6). As COSATU commented bitterly when it became clear that Seardel was going to close Intimate Apparel:

            Seardel as a group has taken millions of rand from government programmes to shore up their company and they were meant to restructure the operations and make it more effective. The money seems to have been pocketed as the cars and bonuses of directors are as extravagant as always and the companies are still struggling. (COSATU 2012)

            Indeed, according to Seardel's accounts, the company received about R643 million in production subsidies between 2001 and 2014 in what ultimately turned out to be a largely futile attempt by the state to save clothing and textile production in Seardel and other firms.
            Figure 6.

            Wage and profit shares of value-added in Seardel from 2003 to 2014.

            Source: data obtained from financial reports available from http://www.seardel.co.za/investor-relations.

            In 2014, HCI threw in the towel with regard to the clothing business, no longer prepared to test its shareholders' patience with the ongoing losses. It sold its remaining clothing manufacturing units (accounting for 2000 jobs) directly to Trade Call Investments, an investment company owned by SACTWU (Matsilele 2014). It also sold the Lesotho operation (NyeNye Clothing) to a third party, finally ridding itself (and SACTWU) of the embarrassment of owning a low-wage producer in Lesotho that had benefited directly from the destruction of low-wage competition in South Africa by NBC inspectors. HCI bailed out the remainder of Seardel with a R5 billion rights issue and consolidated its media operations into Seardel (HCI Annual Report, 2014). This left HCI with a 78% stake in what was left of Seardel, i.e. largely a media and property investment platform, entirely devoid of the economic base in clothing production that Aaron Searll originally built the company upon. SACTWU retained directly a 3% holding of N-ordinary shares in Seardel.

            This episode illustrates how difficult it has proven to be for South African clothing companies, even those like Seardel with committed management and massive government support, to survive in the face of the squeeze between strong international competition and wage pressure. It has previously been argued that labour-intensive producers in the non-metropolitan areas were competing successfully against foreign imports (legal and illegal), but only by paying basic wages below the rising legislated minima and employing illegal piece-rate payment systems (Nattrass and Seekings 2012, 2014). Seardel's founder, Aaron Searll, argued that a new wage model linking a greater component of pay to productivity was necessary if minimum wage-compliant firms were going to survive international competition. Such changes, however, were resisted by SACTWU. Decent work for the few came at the cost of persistent job destruction in Seardel and across the industry.

            Conclusion

            SACTWU is far from being a conventional union, given its significant investment income (most of which derives from its interests in gambling, property and television) and now its direct ownership of clothing factories. In addition to blurring the boundaries between labour and capital, it has also blurred the boundaries between labour and the state by appealing directly to powerful economic ministers (notably its former general secretary, Patel) and using political influence to shape industrial policy.

            In late 2014, court documents (pertaining to a dispute between Golding and the HCI board which ended in Golding's resignation) illustrated how SACTWU could and did use its influence in HCI for political purposes. In an affidavit, Golding alleged that SACTWU had put pressure on e.TV (now fully owned by HCI/Seardel through its subsidiary Sabido Investments) to provide publicity for Patel and to prevent any mention of Tsogo (a major HCI gaming asset) in a programme featuring gambling addiction (Golding 2014, 63 and 67). Golding stated that his relationship with Copelyn had deteriorated because of ‘concerted pressure’ from SACTWU and its persistent attempts ‘to influence the editorial direction of e.TV news in order to further its agenda’ (Ibid., para. 43). Golding argued that pressure had worsened in 2013–2014 in the run-up to the elections and especially after a politically connected SACTWU representative joined the board of HCI (Ibid., para. 44). Former ANC minister Barbara Hogan resigned from the board of HCI along with Golding, also citing dissatisfaction with SACTWU's behaviour.9 The intricacies of the corporate power struggle aside, the documents provide a window into the way that power can and has been wielded through union investment vehicles in support of economic interests and political allies. SACTWU, embroiled in casino capitalism through the stock market dealings and gaming interests of HCI, continues to influence government to tilt the odds in its favour – as do many other businesses, although perhaps not with SACTWU's success.

            Acknowledgements

            We are grateful to Shane Godfrey, Johann Maree and Mike Morris for correcting errors. SACTWU's general-secretary declined repeated requests to meet and discuss this and other analysis.

            Notes on contributors

            Nicoli Nattrass is Professor in the Centre for Social Science Research at the University of Cape Town.

            Jeremy Seekings is a Professor in the Department of Sociology and is Director of the Centre for Social Science Research at the University of Cape Town.

            Disclosure statement

            No potential conflict of interest was reported by the authors.

            Notes

            1.

            We are grateful to Mike Morris for this point.

            3.

            For SACTWU membership and social programmes, see http://www.sactwu.org.za/union.

            4.

            According to http://www.sactwu.org.za, SACTWU had 99,697 members in 2014 (checked 25 November 2014). This is more than the number of workers employed in the clothing and textile industry probably because SACTWU organises also in the leather, footwear, distribution and allied industries. SACTWU reported membership figures of 85,025 in 2012 to the COSATU conference. Assuming membership grew steadily in the intervening years, this implies a membership of 92,361 in 2013. SACTWU does not put its accounts in the public domain, hence the estimate for fee income.

            5.

            Information on membership fees for 2013–2014 can be found here: http://www.google.co.za/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CB4QFjAA&url=http%3A%2F%2Fwww.sactwu.org.za%2Farticles%2Fdoc_download%2F13-sactwu-membership-form-distribution&ei=jplpVNSHGYfwaI6AgdAM&usg=AFQjCNEcrAWysKj7IubZbgmmT1l5yRPZrQ&sig2=6HdLJeAXic1SOzkJ6ZKKjw&bvm=bv.79142246,d.d2s. Note: this does not include the ‘agency fees' that since 2006 have been deducted off the wages of all workers registered with the NBC and sent to SACTWU as a result of the NBC agency shop agreement with SACTWU.

            8.

            As of March 2014, Golding owned R1,164,830,550 of HCI shares and Copelyn owned R963,094,906 of HCI and Seardel shares combined. In the financial year ended March 2014, they each earned R14,634,000 in salaries, bonuses and share options from HCI and Copelyn earned an additional R150,000 from Seardel in Directors' fees.

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            Author and article information

            Journal
            CREA
            crea20
            Review of African Political Economy
            Review of African Political Economy
            0305-6244
            1740-1720
            March 2016
            : 43
            : 147
            : 89-106
            Affiliations
            [ a ] Centre for Social Science Research, University of Cape Town , Cape Town, South Africa
            Author notes
            [* ]Corresponding author. Email: nicoli.nattrass@ 123456gmail.com
            Article
            1085379
            10.1080/03056244.2015.1085379
            a2f7cdbe-ef94-45b0-a927-fb0a004a2ab1

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            Sociology,Economic development,Political science,Labor & Demographic economics,Political economics,Africa
            clothing and textiles,syndicats, Black Economic Empowerment ,Black Economic Empowerment,vêtements et textiles,South Africa,Afrique du Sud,capitalisme,trade unions,capitalism,salaires et bénéfices,wages and profits

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