What we must do to create jobs in South Africa

As part of our Each One Hire One campaign to create jobs, the Sunday Times is publishing a series of articles by experts on how South Africa can meet this challenge. In the second of four instalments, Zwelinzima Vavi looks at ways to address the two greatest structural problems in the economy

In the wake of the worst global economic crisis since the 1930s, unemployment remains a huge and growing problem all over the world, but South Africa has an exceptional crisis. With 7504000 people unemployed - 36% of the working population by the more realistic expanded definition which includes "discouraged" job seekers - South Africa's rate of unemployment is far higher than that of any comparable middle-income country.

This level of joblessness is the main reason between 40% and 50% of South Africans live in poverty and we have become the most unequal society in the world, with 50% of the population living on 8% of the national income.

Of particular concern is that 72% of the unemployed are young, aged between 15 and 34. More than half of these, 62%, have less than secondary school education and 33% have completed secondary education but have no tertiary education.

A significant number have never been in any type of job. The number unemployed for more than a year account for 60% of the total. This means that most of the unemployment in our economy is structural. Even what appears initially as cyclical unemployment quickly evolves into long-term structural unemployment.

This is our massive challenge, captured in the ANC's 2009 manifesto when it said: "Unemployment is unacceptably high among our people. There is a special challenge among African women, rural persons and young people. There has been a growth of casualised, low-wage and outsourced jobs, contributing to the rise of the working poor.

"Inequality has persisted and increased in our society. Workers' share of national income has continued to decline. The rural areas remain divided between well-developed commercial farming areas and peri-urban and impoverished communal areas. The benefits of economic growth have not been broadly and equitably shared."

So what must we do to create jobs in South Africa?

The starting point is that our society suffers from the intersection of two massive problems: our failure to escape from the economic structure we inherited from the days of colonialism and apartheid, and exclusion of the majority from socioeconomic activity.

The economy is still very overdependent on mineral exports for foreign exchange earnings.

Although some manufacturing exports have increased, they remain driven predominantly by the core minerals-energy complex. Petrochemicals, mining and basic iron and steel make up 69% of total exports, and are highly capital and energy intensive.

The other dominant sector in the economy has been finance, which, since 1975, has outperformed the nonfinancial sector in growth. By 2005, the sector was growing at almost twice the rate of the nonfinancial sector.

This much higher growth in these capital-intensive sectors, rather than more labour-intensive manufacturing, has been a key reason for low job creation and job destruction.

Economies that have grown the fastest have been those with dynamic manufacturing sectors. It is estimated that, on average, a 1% gain in the growth rate of manufacturing value added leads to a 0.49% gain in overall economic growth.

Sectors that have driven and underpinned growth in successful economies elsewhere are precisely those in which South Africa is weakest, such as the manufacturing of machinery and transport equipment.

We need a new growth path in which the manufacturing sector is dominant.

The second key problem is the low levels of effective demand - in plain language, that too many South Africans are so poor that they have next to nothing to spend on goods and services.

Most of the very poor are unemployed, but there is also a growing problem of poverty pay among the employed.

As the ANC said in the manifesto, this has been made even worse by the runaway growth of casualisation of labour and the burgeoning of labour brokers. In 2009, it was estimated that 30% of employment in the South African economy was through labour brokers. Major players in the wholesale and retail sector, for example, work with 20% permanent and 80% atypical employees.

Casualisation is a process that atomizes workers, intensifies competition among them, and drives down the real wage relative to productivity. Yet many employers still regurgitate the idea that cutting workers' real wages, making it easier to hire and fire them and relaxing supposedly "inflexible" labour laws, is the key to creating jobs.

This is the absolute reverse of the truth. Cutting wages leads to a downward spiral leading to less demand for the goods and services, causing further job losses, more people with no money to spend and therefore even less demand for goods and services.

These fundamental problems - the decline of manufacturing and the fall in disposable incomes - have been greatly exacerbated by the neoliberal policies of the past 16 years, notably the adoption in the 1990s of GEAR , the misnamed Growth, Employment and Redistribution Strategy, which promoted the unrestrained operation of the capitalist system.

The principle of GEAR is that economic policy must first promote growth, which will then generate the demand for labour and therefore increase employment, which will increase people's incomes and thereby lead to a growth in consumption.

It is a policy that has spectacularly failed, as unemployment, poverty and inequality have all worsened.

Full employment - meaning a decent job for everyone of working age who is willing and able to work - cannot be delivered simply by the operation of market forces. That is why we need a new growth path, at the heart of which will be a strong developmental state that will intervene decisively in the economy to redistribute resources.

On the one hand it must be redistributive, by improving and expanding provision of basic goods and services to the working class and poor communities, extending social grants and imposing a statutory minimum wage. This is totally different from the proposed youth wage subsidy, which is based on the assumption that the cause of unemployment is the high cost of labour and that jobs for young workers can be created by taxpayers subsidising firms to hire them at a lower cost. The clear danger is that employers will simple retrench an equal number of older workers and thus create no more jobs overall.

On the other hand it must rely less on the private sector and market forces, but take direct responsibility through policies of public ownership of strategic productive sectors in order to direct resources to where they will create jobs and sustainable growth.

Public works programmes can be an important part of a full employment policy but they will need to be significantly broader than the current expanded public works programme. They must develop the skills of young workers, thus preserving capacity growth during recessions, and promote social cohesion by reducing problems associated with long-term youth unemployment, such as crime.

Other measures must include:

Promoting collective forms of ownership like cooperatives and small and medium enterprises through credit access, access to capital equipment and technology, markets and skills;

Taxing financial transactions, to re-orient investment towards productive sectors;

Targeting strategic sectors such as water, energy, steel, chemicals, fertilizers and capital equipment;

Supporting research and development of new technologies and products to meet basic needs and to improve the competitiveness of the economy;

Developing a national innovation system - linking state entities, education and training institutions, research institutions, civil society and the private sector;

Ending the commodification of basic goods and services and the outsourcing of public works to tenderpreneurs;

A drive to create Green jobs, including recycling, and reversing the pollution of our water and the erosion of our soil; and

A new policy on interest rates to replace inflation-targeting with employment-targeting. The Reserve Bank must pay primary attention to the impact of its decisions on employment. This does not mean that price stability is not taken into account - but inflation targeting must not always reign supreme.

If we are to meet the ANC and the government's targets of five million new jobs by 2020, we have to change the pattern of economic development that has characterised this country for over a century, construct a strong developmental state, and pave the way towards an economy that benefits all our people.

Vavi is general secretary of the Congress of South African Trade Unions