Neva Makgetla
They say you should be careful about wishing for something, because you might get it. Business leaders should take this to heart. They insisted on restrictive, free-market policies and now they have got their wish. The result has been massive job losses, slow growth, falling investment and a plummeting rand.
From the standpoint of ordinary people, the crisis started long before the rand began to fall. Since 1994 unemployment has climbed from 17% to 25%, counting only those not too discouraged to seek work. A million formal jobs have disappeared in the past decade, with one in 10 lost since 1997 alone. Economic growth has averaged under 2% a year since 1994, below population growth. Last year, investment fell to below 15% of the gross domestic product the worst since 1993, and far too low for rapid economic growth.
South Africa ranks among the most unequal countries in the world, and these trends have aggravated the situation. Mass job losses more than offset the government’s efforts to improve services to the poor.
So yes, we’ve got the economic fundamentals right, if that means cutting budget deficits and controlling inflation. The operation has been a complete success, but the patient is sinking fast.
The real problem is that our policies seem rooted in economic platitudes rather than an analysis of structural weaknesses, which include:
l The historic reliance on mining, especially gold. The main source of wealth in the economy is declining, while our export base is highly capital-intensive. Even today, more than half of our exports are minerals. In consequence, the export strategy creates few jobs. In manufacturing, efforts to export often start with job cuts.
l Massive income inequalities, which limit the domestic market and reduce overall productivity. Business generally sees exports as the alternative. But successful exporting economies invariably started by improving equality and expanding the domestic market. In contrast, our policies further constrain domestic demand, with deep real budget cuts between 1996 and 1999 and rising job losses. Besides, most of our manufacturing exports still go to the region, which is hardly a stable market.
Our biggest companies see themselves as part of the world mining and finance scene. As opportunities in those fields run out in South Africa, they are likely to look abroad. Since 1994, R54-billion has left the country in foreign direct investment, compared to an inflow of R45-billion.
The government’s response to these challenges has been at best contradictory. On the one hand, especially between 1994 and 1996, we saw a commitment to improving services for black communities, protecting labour rights, developing skills and supporting small and micro-enterprise. On the other, especially after Gear (growth, employment and redistribution strategy), the government cut its spending, looked to private provision of basic services, slashed tariffs and deregulated markets wherever possible.
To overcome our economic malaise requires a much more structured and coherent development strategy. Key elements include consistent support for relatively labour-intensive sectors that can create jobs directly and indirectly. Many of these would meet basic needs more efficiently, which should raise living standards. Examples include agriculture and food production, transport and household infrastructure, and private and social services.
This approach requires a more balanced approach to exports. We cannot afford more billion-rand export projects that, like Coega, are justified by vague and unfulfilled promises that they will create jobs indirectly.
Also required are strategies to expand the domestic market through employment creation, more relaxed fiscal and monetary policies and targeted procurement measures.
Government infrastructure and social programmes must maximise job creation both directly and indirectly. For instance, locating houses far from work raises the cost of labour and aggravates unemployment. Government must help address unemployment by expanding both public works and community service programmes. Volunteer programmes for adult basic eduction and training, child care and support for people with Aids could create meaningful occupations on a mass scale.
More equitable asset distribution can be achieved through large-scale skills development, government services and infrastructure for the poor, support for small enterprises and land reform. In contrast, current programmes of privatisation and budget cuts reinforce existing inequalities.
Above all, an effective development strategy must meet the diverse requirements of economic sectors. This type of strategy has never emerged from the backrooms of government. As the South East Asian experience demonstrates, they require in-depth consultation with sectoral stakeholders. Only that can generate practical policies.
For this reason, sector job summits and the discussions on industrial policy now under way at the National Employment Development and Labour Council are critical. We can only hope that the government makes a genuine commitment to these processes.
Neva Makgetla is coordinator of fiscal, monetary and public-sector policy at the Congress of South African Trade Unions