SA faced with 'politically unpopular decisions' to boost employment

Faced with the “world's deepest unemployment crisis” SA has no choice but to make politically unpopular decisions to employ about 10 million job seekers.

This was the core of a presentation by Anne Bernstein from the Centre for Development and Enterprise's (CDE) about a report on the country's economic crises titled Ten Million and Rising: What it would take to address South Africa’s jobs bloodbath.

It is based on reports, interviews with experts, and research conducted by the CDE which frames itself as the country's leading development think-tank.

Speaking at the Cape Town Press Club on Thursday, Bernstein said SA government policies had led to an economy with very little space for the country's largely unskilled workforce.

“SA needs jobs for the workforce we have, not the workforce we wish we had,” she said.

SA had the world's deepest unemployment crisis, according to the report, starting in the 1970s with apartheid policies excluding black people from jobs and education and continuing until now (barring a few years of diminishing unemployment in the 2000s).

“The apartheid spatial legacy imprisoned many, in the past and today, in poverty traps and has retarded urban growth,” she said.

Bernstein said post-2008 state capture “on an industrial scale”, increased antagonism towards business, and widespread corruption had become key factors leading to a weak economy.

SA had an inability to provide high enough growth to absorb unemployed people, a problem only proper governance could fix.

On top of this SA had a regulatory environment where the costs of employing people were increasing and increased the risks to employers. “The number of jobs created for each point of GDP growth has fallen,” read the report.

“We have made some very bad policy choices. We’re about to make some very bad choices on property rights. We have built a concentrated and uncompetitive economy,” she said.

She said public sector enterprises had a big impact on the economy.

“The vast majority of them are completely useless monopolies. If you want a competitive economy put as much energy there as you did with the companies which colluded over the bread price,” said Bernstein.

“We have gone for an approach that says we want a high wage, high skill economy. If you look at manufacturing today, we employ 300,000 fewer people in manufacturing than a decade ago,” she said.

Capital expenditure in the manufacturing sector had led to lower labour intensity globally but she said research showed that this was much more pronounced in SA.

She said wages were being driven up artificially through government mechanisms and labour laws built on the assumption that organisations acted in bad faith.

“These rising wages are mainly caused by deliberate policy intervention, not rising productivity or tight labour markets,” she said.

“If you run a small firm the risk of spending time and money in the CCMA reduces your [willingness] to hire anybody, especially someone who’s never worked before. But, larger firms can absorb these costs,” she said.

Bernstein said the argument among certain trade unions and academics that higher wages would stimulate growth was implausible.

“The argument is that higher wages for the employed will drive economic growth and the claim is that this will encourage more consumption especially of local goods and therefore it’s good for growth for everybody. We think this is highly implausible,” she said.

“Higher wages will increase costs and therefore prices, this will reduce consumption, and higher consumption implies lower savings which means the country will invest less or rely more heavily on foreign savings and imported goods,” she said.

She said that as part of their research they spoke to South Africans and heard their opinions about what was needed to grow jobs.

She said helping the poor in the places where they lived, especially rural areas and in townships, was not a viable solution.

“We’re an urbanising country and it’s much easier if people move to the cities to provide services and access to opportunities, and it will help to create more jobs,” said Bernstein.

She said the idea being touted that unemployed young people should all become entrepreneurs was crazy.

“Those of you who are entrepreneurs will know how crazy this is. We know from international literature, from SA’s experience, that to be a successful small business you need a degree of education and you need to have worked in that sector for five or 10 years before you can create a successful business,” she said.

The report gave recommendations for a new approach by government that could create both economic growth and in an environment that was more labour intensive.

“We have to stop avoiding the reforms which need to be made to achieve scale. Initiatives are not a substitute for hard policy reform. If you think about the public works programme where people are paid a low wage, we think this is proof that people prefer a low-wage job to no job at all,” Bernstein said.

She said the essential fixes which need to be made to defreeze the economy were electricity-generating capacity, the fiscal crisis, basic education, and the skills system.

“We should open our doors to any skilled immigrant who would come here. It’s not just for the big companies to get two or three people, it’s open the doors to skilled immigrants who might not have a job. They will very quickly start a business or they will find a job, this will boost our economy like it has many others,” said Bernstein.

She said a competitive environment needed to be created so that small business could thrive.

“Small businesses which are significantly in decline are prejudiced by high compliance costs and big dominant firms and the state-owned companies are a great big albatross on the economy. They are mainly inefficient monopolies and they have bankrupted our country.” 

Bernstein’s suggested policy changes require political will. “We need to roll back some new policies that, this president under his watch, are starting to threaten property rights and a number of other areas,” said Bernstein.

She acknowledged the work that labour unions had done to improve worker rights, but called for an exemption for small businesses from collective bargaining.

“The most sustainable, expandable, jobs projects are called firms.

“Reforming labour markets is always politically difficult in any society, but SA has no choice,” she said.