Howard Barrell
Over a Barrel
On my way to work each morning, I pass a set of traffic lights in an outlying Cape Town suburb at which about 50 men offer themselves, often pleading, for any kind of work at almost any rate of pay.
Their daily horror, like that of the jobless across the country, is a daily challenge to us all. Yes, yes, we can all tut-tut and declare that our high unemployment rate must be reduced. But our capacity for sentiment is hardly the issue. The greater challenge is to develop policies that foster job creation on a large scale.
Broadly speaking, three strategic options present themselves.
First we can look to the state to create the necessary jobs. In this instance, the state can do one or both of the following. It can move far beyond modest poverty relief programmes, such as the Working for Water project, and create many more jobs in the civil service or parastatals, adding greatly to its wage bill. Or it can spend massively in the economy on various projects to stimulate demand, so increase business opportunities, and so foster jobs.
There are problems with this approach. To pay for it, a government must either significantly raise taxes or borrow much more, or both. This might have been a sensible option in the relatively closed economies of the 1950s, 1960s and 1970s. But now, when national economies are more open to each other, this would be heavily punished internationally and, so, be counter-productive.
How so? Through any one of a number of causal sequences.
One plausible sequence goes like this: by raising taxes and borrowing substantially, the state reduces money available for lending to private companies and individuals; competition to borrow increases and, as a result, the cost of money, namely the interest rate, rises; high taxes and interest rates discourage foreign fixed investment and there is some capital flight; our balance of payments deficit worsens; as a result the international value of the rand falls; to prevent it falling too sharply, we raise interest rates still further to encourage foreigners to hold money as rands; by doing so, we attract mainly speculative inflows of portfolio investment, which can leave the country as suddenly as it enters; this hot money creates few, if any, jobs; instead, by raising interest rates further to attract this hot money, we curtail economic growth, discourage fixed investment still further, put a damper on job creation, and quite possibly send the economy into recession; with economic growth slowing, the state takes up a greater burden as job creator; but, because of the decline in economic activity, yesterday’s tax rates provide the state with less revenue; so the state must raise its rates of tax and/or borrowing; and so the sequence becomes a vicious circle.
But can’t we tell the world to go hang itself and get the state to create as many jobs as we’d like?
As a country, we produce all of one two- hundredth of total world economic output. It’s a fair calculation that we cannot stand alone and prosper.
So what alternatives present themselves?
It seems two other broad strategic options. Both are based on a version of the government’s policy for growth, employment and redistribution strategy (Gear).
Gear is designed to create an investor- friendly environment in South Africa, so to boost economic growth and so to create more jobs. It is a plan for small government, and it sets targets for inflation, interest rates and the like – all of them tight and respectable in today’s world.
But Gear has experienced a number of problems. One: it has never been properly implemented. Two: to the extent that it has been, it has not attracted much investment or achieved much economic growth. Three: to the extent that it has achieved growth, this growth has not meant more jobs. Since 1994 we have actually lost about 500 000 jobs.
On the premise that it is mainly economic growth that attracts investment, a number of economists are now calling for a less puritanical, though still restrictive, version of Gear. They believe that a slight relaxation of inflation targets, which should allow for lower interest rates, will encourage growth, investment and, so, lead to more jobs.
But why has the little growth South Africa has experienced over the past five years not led to more jobs? Because the kind of economic growth South Africa has experienced has been increasingly capital intensive – not just since 1994 but for nearly three decades, according to Raphael Kaplinsky, an economist at Sussex University in Britain. That is to say we have been producing goods and services using more expensive machinery and less labour.
A capital intensive strategy – the first of the two alternative strategies I said we would look at – may, indeed, create more jobs. But to do so requires large inflows of foreign fixed investment and a high rate of growth – and a highly educated and skilled workforce. And we have none of those things.
So, how do we achieve what Nicoli Nattrass, an economist at the University of Cape Town, calls “labour-demanding growth”? Part of her answer is: via a less severe version of Gear. A more important part, however, is that we must recognise that some of our labour laws have either encouraged employers to shed labour in favour of machines or pandered to those employers with enough capital to do so.
In a paper last year for the Centre for Development Enterprise, she said government’s left hand was out of sync with its right. She wrote: “Whereas Gear assumes that labour market policy will facilitate greater flexibility and contribute to labour-intensive growth, current labour market and trade strategies are exacerbating the current trend towards capital intensity.”
What we need, she and others argue, is a more labour-intensive growth strategy. That, she says, requires a number of reforms to our labour laws. Among other things, we need a more flexible system of wage bargaining – not our current system of industrial-level negotiation which favours bigger companies more prone to capital intensity to the detriment of the smaller enterprises more likely to create new jobs. And there are a great many other suggestions.
“Labour market flexibility” may indeed be code for exploitation by unscrupulous capitalists, as some unionists and communists still allege. It is indubitably, however, a requirement if we are to have labour-demanding growth. It has surely not eluded unionists and communists that the bosses’ and workers’ interests may not, after all, be mutually exclusive. From one’s improved return may flow another’s job.