This resource is hosted by the Nelson Mandela Centre of Memory, but was compiled and authored by Padraig O’Malley. It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.
Approaches to a strategy for job creation
VELLA PILLAY argues that if we are to create jobs and generally transform our economy we must reverse the trend towards minimising the role of government in the economy. Pillay is a member of the board of the National Institute of Economic Policy (NIEP).
South Africa's unemployment is now structural in the sense that it has become a long-term problem. Among those unemployed, almost 60% have been without a job for more than one year, while an additional 18% have been unemployed for between six months and one year. This implies that more than one third of our working population finds itself in this category of structural unemployment. Something approaching another one third is perhaps unemployed due to short-term cyclical factors. The incidence of unemployment falls heavily and excessively on our African population. Unemployment is also primarily a problem of the young, some 55% of unemployed Africans are less than 30 years of age.
Formal non-farm employment rose by 1% in 1995, creating around 50,000 new jobs. On the other hand the number of new entrants into the job market grew by some 380,000. Between the start of the current recovery in mid-1993 and the first quarter of 1995 52,000 new jobs were created. This has to be compared with the loss of 429,000 jobs in the recession between 1989 and 1993. Employment in the mining industry has plunged by some 140,000 to 333,000 in the last five years, with a loss of 58,000 in 1995 alone.
Projections of the future level of employment to the year 2005, based on a model relating employment to output growth, and taking into account the natural increase in the size of the labour force, are not encouraging. If we assume unchanged economic policies, such projections suggest that output growth would have to reach almost 8% per annum to achieve a constant level of unemployment with a 3,89% annual growth of the labour force. With these projections, there is also unlikely to be any reduction in the skewness of income distribution between the African and non-African labour force. In other words, these numbers suggest that if employment is to grow by more than the natural increase in our population (and if the present inequality in income distribution is to be progressively reduced) major changes in macro-economic, social, trade and industrial policies need to be made.
In the meantime, a new study by researchers at the University of Cape Town shows that more than half of all South Africans - 95% of them black - fell below the poverty line of less than R301 a month.
The immediate outlook for employment remains bleak, despite the output growth of around 3% in 1995-6. Tens of thousands of provincial and central government employees face retrenchment as the state struggles with its arbitrary and self-imposed budgetary constraints. Tens of thousands of textile jobs are likely to be lost as a result of the tariff reductions. To this may be added the consider-able job losses entailed in the projected plans for the privatisation of public assets. NALEDI (the COSATU-aligned research NGO) has estimated that already some 130,000 jobs were lost at Eskornand Transnet in 1993-4.
Approaches to employment policy
In the recent period we have had two programmatic processes on economic policy critically concerned with the unemployment problem. The first is the drafting of a major project to take the RDP forward by government departments through an initiative by Deputy President, Thabo Mbeki. The second is the so-called "Growth for All" economic strategy of the South African Foundation. The third horse of the Nedlac troika - the trade union movement - is [at the time of writing this paper -ed.] in the process of formulating its approach to the unemployment problem.
Here I wish to indicate briefly my view on the first two initiatives, before suggesting my own thinking on unemployment.
The National Growth and Development Strategy (NGDS) of Government
The NGDS has not yet been made public as a formal document. It would, therefore, be unfair to comment in any detail on existing drafts. However, it is most important that a broad debate does occur, and that this debate does not wait while a governmental drafting process takes its own course. This is particularly the case as I have the impression that, while there will he strong rhetoric on the need for employment generation, there will be considerable vagueness about policy instruments. There is a real danger that we will end up relying on market forces to resolve our problems. As things stand, there seems to be little recognition of the uniqueness of the South African unemployment crisis, and hence of the need for a very much more original approach to its solution.
My impression is that the immediate measures for growth and hence employment that are going to be advanced are the coordination of exchange rate and tariff policies and the elimination of ex-change controls. This would bepart of a programme of evolving competitive niches in export markets, the build up of tourism, and greater involvement in the SADC area. Employment will be seen as conditional on opening up the economy to international competition, which in turn will be the major influence over the country's industrial policies, and this is what will be called the restructuring of industries.
We are likely to he told about the so-called informalisation of sectors of industry, leading to a reduction of wage levels and costs. To this will be added a public investment programme. At the heart of this kind of programme there will he five sectors which will drive the employment creation of the future: manufacturing for exports and domestic needs, land and a largely undefined agricultural reform, tourism, construction and engineering, and the financial and administrative sector. If I am not mistaken, macro-economic policy will remain conservative as at present, with heavy reliance on the impact of the removal of exchange controls, the reduction of tariffs, and other deregulatory measures. There is an expectation of major inflows of foreign capital, which will foster a significant export sector and he the saving grace for the South African economy in the next millennium.
The "Growth for All" strategy of the SA Foundation
The SA Foundation document is unashamedly right-wing in the sense that it seeks to recreate, albeit under different auspices, the dual economy of the past. The first of these economies would he a contemporary version of that which is dominated by the conglomerates, grounded in the high standards of the white population, open to the outside world, focusing on exports and not encumbered with regulations relating to exchange controls, import tariffs, high taxes, or other government intervention in the economy. For this economy the state would privatise all public enterprises, stretching from the sale of the large Industrial Development Corporation holdings in Iscor, Sasol and Alusaf. The selling off of the more complex enterprises, like Transnet and Telkom will then follow, and then parts of Eskom, and finally the government pension funds. All this will be buttressed by what is called a flexible labour market - a market of free entry within a two tier wage structure.
It is this second tier which revives, in a different guise, the dual second half to the first economy. This second tier would be designed to serve the revival of the old cheap labour system of the apartheid era - a system which denies minimum wage regulations, and which maintains the barest labour standards. One assumes that this labour tier will, in time, come to define the employment system in the mines, and in many other labour intensive industries.
This is not an anti-poverty strategy, rather it will provoke a fierce competition for jobs by workers in each of the two tiers, and between the two tiers. This will force down the average wage rate in the country as a whole.
As for government policy, this document calls for °sound" policies of low inflation, slashing the fiscal deficit, tight control over the money supply, positive real interest, the reform of the tax system, comprehensive deregulation of the economy, full liberalisation of the financial sector, and the orientation of industrial development to the outside world, that is, to exports.
The role of the nation state
It is quite evident that at the centre of these two approaches - of government and the SA Foundation - is the question of the role of the state in the economy. What I believe is the emerging government approach is equivocal, largely confining itself to what are called supply-side measures and investment in people as a facilitating role in the economy. The SA Foundation, by contrast, is less equivocal, it calls for the absolute reduction of the role of the state in the economy.
In my view, and basing myself not only on international experience, but the internal logic of an economic policy for growth and development, there has to be a fundamental unity and a mutual interdependence between the monetary, fiscal, industrial, trade, labour market and infrastructural policies. That unity and interdependence constitute what we generally call macro-economic policy.
This suggests that the macro-economic cannot exist without a clear conception of the role of the nation state. Whether economic policy makes the state loom large as a major actor in the economic area, or reduces its role to one of behind-the-scenes activity, there is an underlying theory and indeed a practice about the way in which the state and civil society are formed and interact. Sadly, in our country today, there is an observable tendency to brush aside this implicit conception of the state. Yet, in my judgement, that conception remains crucial, because it informs and affects the way in which macro-economic processes themselves are viewed and managed. This tendency to neglect this whole question manifests itself in the steady retreats of the state - the virtual abandonment of interventionist economic policies to over-come market induced failures, cutting hack the public sector through privatisation measures, the concentration of government efforts on restricting and reducing the fiscal deficit at a time when unemployment has reached unprecedented heights, and deregulating critical areas of macro-economic management, such as exchange controls.
But there do exist viable alternatives to the present range of economic policies. What such alternatives require is a new courage and determination in our governing institutions not to be intimidated by the threats of a collapse in investor confidence and other similar pressures from the old establishment and the international financial institutions. The options which immediately suggest themselves are:
The key focus of policy should be directed towards mobilising and putting into productive employment our country's most important resource - namely our people. This implies policies which generate, through rising domestic employment, an ever widening domestic market, with this market becoming the mainstay of the economy and the launch-pad for a competitive structure of foreign trade relations. Our present policies are precisely the reverse of this approach, and hence the feeble state of the economy's growth.
We should demystify all those policy injunctions which seek to divert the country's macro-economic policy from redressing inequality and which reduce the reconstruction and development programme into an empty mantra. This means that arbitrary limits to the fiscal deficit should be abandoned and fiscal policy should be structured around target levels of employment generation. Today, a feasible fiscal deficit as a ratio of GDP is around 7-8%, and not the 5,3% being presently sought by the government. The funding of such a deficit can be easily managed by the restitution of the policy of requiring, by law, all the savings institutions to hold one-half of their assets in government bonds (the so-called "prescribed assets" system").
A further necessary process of demystification concerns monetary policy - the practice of enforcing arbiteary rules on money supply and credit and the punitive level of interest rates in the name of "fighting" inflation. The reduction of the effective rate of interest to around 5% will save the government many hundreds of millions of rand in the cost of servicing the national debt. Further, such a rate will allow small and medium-sized firms to flourish and expand employment opportunities.
The protection of the largely infant sectors of our economy through an active tariff policy against foreign competition should be enhanced instead of the present trend which has already begun to decimate our manufacturing sector, the textile and clothing industries in particular.
The further relaxation of exchange controls, especially on the capital account, should be abandoned. The alternative would be a scale of capital flight that could bankrupt our economy.
All of the above, finally, require a reversal of the present rolling back of the state in the management of the economy. This means halting the current programme for the privatisation of public assets and the construction of a purposeful macro-economic policy which brings together, in a consistent whole, all the instruments of economic policy - fiscal, monetary, trade and tariffs, labour market, transport, the social and economic infrastructure, industrial policy and much else - in the pursuit of clearly defined objectives. The most important of these must be the creation of jobs and the reduction of poverty.