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On "Constructive Engagement" in South Africa

The United States is South Africa's largest trading partner, its second largest foreign investor, and the source of one-third of its international credit. US investments in South Africa, including investments made through subsidiaries, are estimated at $4.4 billion. In addition, US investors hold approximately $8 billion in shares in South African mining companies. US companies engage in $4.8 billion in trade with South Africa, and US bank loans to South Africa now stand at $4.5 billion.

US corporations control almost half of the South African oil industry, 75 percent of the computer industry, and 23 percent of the auto industry. Leading US exports to South Africa included in 1983 $218.4 million in aircraft and aircraft turbines -- 60 percent of South Africa's supply -- and $122.2 million in computers and computer parts -- 35 percent of South Africa's foreign supply. The US imports one-third of South Africa's total Krugerrand gold exports, a critical source of foreign exchange earnings.

For years, organizations and people across the world have been calling for the United States and the other major foreign investors in South Africa to disinvest from that country, to withdraw the economic support which they are giving to the minority government and its apartheid system. The primary response which US corporations have made against these calls has been that serve as a positive influence on the treatment of blacks within South Africa. Morgan Guaranty Trust Corporation has written that "the continued presence in South Africa of US companies constitutes a source of economic well-being for black South Africans, and can be a spearhead for improvement in employment practices, as shown by the [Sullivan Principles]."

Many persons are reluctant to support US corporate disinvestment from South Africa, because they wonder if this claim isn't correct. Do US corporations serve as a positive influence on the employment practices of businesses in South Africa? Do US companies benefit the black population, offering training programs and better employment opportunities than do South African companies? Defenders of continued US corporate involvement in South Africa have seldom been forced to demonstrate the reality of these claims.

US companies have been operating in South Africa since the turn of the century -- far longer than the apartheid system has even existed. Apartheid as such was instituted in South Africa after World War II and was modelled on the US Jim Crow system. When Jim Crow was the legal system here, US corporations were as discriminatory as ever and paid poverty wages to those blacks which they did hire. Jim Crow, as a legally sanctioned system of segregation, was later abolished in the United States, not as a result of US corporations setting a good example, but as a result of popular movements. Defacto segregation and discrimination have persisted in US corporations in the United States even after they had been outlawed. Numerous court battles and labor strikes and negotiations have been fought to challenge these US company practices.

The same is true in South Africa. General Motors operated in South Africa for 50 years before any black or colored persons were hired for salaried positions.

One of the key features of the apartheid system is the regulation of work and employment practices which keep the wages of black workers low. This has included government recognition and protection of white unions and multi-racial unions controlled by whites. As long as the South African government refused to recognize and protect any independent black union, US companies refused to sign an agreement with any of them. Only in 1979, when the popular political pressures in South Africa forced the government recognition of independent black and multi-racial unions, were the unions able to force US companies to bargain with them.

This recognition has been forced upon the companies through strikes and other union activities. Many US companies still refuse. At City Investing the Metal and Allied Workers Union has been struggling for recognition. 140 workers there were dismissed for their strike activity. Coca-Cola only signed an agreement in March of 1984 after strikes in 1981, 1983 and 1984. The Columbus-McKinnon corporation has fought a recognition agreement for two years and refuses to bargain at the plant level.

US companies have never advocated or supported the organization of black workers, because the US corporations profit from the lower wages and working conditions that apartheid encourages. When the Kellogg corporation signed a recognition agreement, the union won a 58 percent wage increase. At Borg-Warner, in 1980, the new auto workers union won a doubling of the monthly wage. In 1984, they won a further wage increase of 23 cents, up to $l.65 per hour.

United Technologies' Otis Elevators subsidiary has a closed-shop agreement with a white-only union. Ninety-eight percent of all black workers at Otis Elevator are in the lowest half of the job grades, while only 18 percent of the white workers are. The average wage of the black workers is $398 per month. For the white workers it is $1911. None of the black workers at United Technologies' Airco subsidiary are organized. At Tidwell Industries the Metal Workers Union steering committee members were fired when they approached the management for union recognition last year. The 1984 maximum monthly wage of a black worker at Tidwell was $163. At the end of last year, Union Carbide's Tubatse subsidiary fired the entire black workforce and cancelled its recognition agreement with the union.

US corporate claims to acting as a positive influence in South Africa rest primarily upon their implementation of the Sullivan Principles. These principles include a call for non-segregation in work facilities, equal employment practices, equal pay for equal work, training programs for black workers, increasing the number of black management personnel, and improving the quality of life for workers outside the workplace. Companies operating in South Africa have been encouraged to sign these six principles and submit themselves to a review of their performance. Recently added has been a principle of active advocacy for political changes away from apartheid.

Of the 284 US companies operating in South Africa, only 128 have even signed the Principles. In 1984 over one-half of the signatories either never reported or received a failing grade.

Ford Motor Co. has proudly spoken of itself as a leading supporter of the Sullivan Principles. It touts management training centers and desegregated cafeterias and other evidence of its progressive influence. Yet, the black auto workers at Ford South Africa have been forced to strike in 1979 and 1982, and the union has long accused Ford of refusing to negotiate in good faith. In the 1982 strike, Ford closed its plants when the union demanded a $2.16 per hour minimum wage against Ford's $1.90 per hour offer. Last year, 1500 Ford workers went on strike to protest the layoff of 490 workers. An additional 800 workers were put on layoff later that year.


And every US industrial facility is integrated into the civil defense plans of the South African government. That is, General Motors cooperates in working out plans for securing its plants in the case of civil unrest. This includes arranging for and paying for the police and security forces necessary. More importantly it includes turning over its facilities for military production at the direction of the South African government.

That's "constructive engagement."

Perhaps we should try disinvestment.

John E. Parsons

Assistant Professor of Finance

Sloan School of Management